The Alberta Teachers’ Association

In an article published in the Financial Post (October 7, 2011), authors Bill Tufts and Lee Fairbanks bemoan the fact that “public-sector unions have negotiated pensions that lift their retired members far above the poverty line.” They also claim that those pension plans provide “a seamless level of income support for public-sector employees, spanning their careers and continuing into their retirement until death.” Moreover, the authors, both analysts with the organization Fair Pensions for All, argue that the “plans have been heavily funded by Canadian taxpayers.” Tufts and Fairbanks are the authors of Pension Ponzi: How Public Sector Unions Are Bankrupting Canada’s Health Care, Education and Your Retirement, which describes how these “overly generous pension schemes” and powerful public sector unions are “bad news for taxpayers.”

The Financial Post article is not an isolated attack on public-sector unions, defined-benefit pension plans or public-sector workers. Defined-benefit pension plans are under attack because they provide a benefit based on salary and service and are mandated by the plan document or legislation despite losses to the assets of the plan. Those losses must be funded by the plan sponsors (in the case of the teachers’ plan, by teachers and the government), who bear the risk that the assets will not cover the pensions promised to retirees. In defined-contribution plans, however, retirees’ pensions are based on what the employer and employee have contributed (which may have no relation to what is needed to fund retirement) and on how those contributions have performed in the investment market, as of the date of retirement, thus placing the risk solely on the shoulders of the individual worker.

Teachers who are confronted by critics of their defined-benefit pension plan should point out that in 1939, Alberta teachers and the government had the foresight to allocate some of that year’s education budget, which would have otherwise been available for salaries, to the teachers’ pension plan. The government’s contributions are part of teachers’ compensation. Teachers agreed to defer that compensation and to take it instead as retirement pension. That pension is earned through service and accumulates over a teacher’s working life. These contributions and the interest they earn over the course of a teacher’s career are an efficient and cost-effective way to provide teachers with retirement income.

Teachers pay more than half the contributions needed to fund their current service. The teacher contribution rate for the current school year averages 10.71 per cent of salary. In short, teachers are paying for their pension. Teachers also pay for past service deficiencies—all plan deficiencies must be made up within 15 years of their discovery. Teachers and the government share the burden of those payments equally. Currently, teachers pay 3.17 per cent of their salaries into the pension plan to make up for deficiencies in the plan since 1992. Since 2007, the pre-1992 unfunded liability is being addressed at considerable savings to taxpayers in comparison to the earlier 1992 funding structure, which was not sustainable and not financially prudent for teachers or the government.

The benefit teachers receive from their pensions every year they earn service is deducted from their RRSP room. Teachers and other taxpayers in defined-benefit plans have no advantage over other taxpayers in saving for retirement.

And let’s not forget, teachers are taxpayers too.

Teachers, other public-sector workers, defined-benefit plan members and their representative organizations did not cause the present market conditions, which have reduced the assets of many pension plans. The solution is not to blame pension-plan members who have paid into their plans in good faith and who agreed to defer compensation for their service nor is it to define those people and the service they have earned though their careers as “liabilities” to be paid “on the back of taxpayers.” If we really want fair pensions for all, we need to strive for defined pensions for all workers, rather than vilifying people with public-service pensions.