Saturday April 19, 2014

Pension reform needs to start now


Not only are taxpayers bailing out the latest struggling government employee pension plan in Saskatchewan, university students also get to pitch in this time.

Pensions can be complicated, so here’s a plain English description of what’s going on at the University of Regina and why it’s not fair for taxpayers and students.

Back in 2006, University of Regina employees enrolled in the non-academic pension plan (support staff, not professors) put in 5.15 per cent of their salary into the university’s staff pension plan.

If an employee at the university had earnings of $38,835, they would put in $2,000 per year into the plan.

However, at the same time the University of Regina would match employee contributions. In other words, students, through their tuition fees, and taxpayers through taxes provided to the university from the provincial government, would also put in $2,000.

Considering 75% of Saskatchewan taxpayers working outside government don’t have a workplace pension plan, and have no one matching their retirement savings contributions, you can see how sweet a deal that is for the employee. Not to mention most students would some day graduate and not have the same benefit themselves.

But it gets better… for employees that is, not students and taxpayers.

The type of pension plan non-academic employees enjoy actually guarantees them payouts for the rest of their life, no matter how long they live. So while people in the private sector without pensions have to worry about what could happen to their RRSPs when an economic slowdown takes a bite out of their savings, the university employees in the non-academic plan don’t have the same worry.

This obviously requires people managing the University of Regina’s plan to make a whole bunch of impossible guesses – how long will employees live? What will happen with the economy over the next forty years? What will happen with interest rates? Inflation?

Not surprisingly the plan, like so many others built this way, hasn’t worked out and needs more money. As of 2008, the contribution rate went up to 6.5 per cent of their earnings. The rate increased again in 2010 to 7.75 per cent and is going up to 8.75 per cent as of January 1, 2014.

It may not seem like a big increase, but consider how it plays out money-wise. Hiking contribution rates to 8.75 per cent, means that taxpayers and students will no longer put in $2,000 like they did for an employee with earnings of  $38,835 in 2008, they would now put in about $3,398. That’s a 69.9 per cent increase in terms of the amount put in. Multiply that by hundreds or thousands of employees and the money really starts to add up.

So what needs to change? The University of Regina needs to do something Saskatchewan’s NDP did with most government employees back in the late 1970s. All new employees should be put in a new, less costly type of pension plan – one that doesn’t require constant rate increases and protects taxpayers from surprise shortfalls. It’s called a defined contribution plan.

It may not be as golden as the current plan, but even with matched contributions of 5.15 per cent it would still be significantly better than most people enjoy.

One thing is for certain, the university needs a lesson in fairness. What’s going on now just isn’t fair for taxpayers or students.

Colin Craig is the Prairie Director for the Canadian Taxpayers Federation



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