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The following letter from ATA President Carol Henderson appeared in the Calgary Herald, January 20, 2012. Henderson was responding to an opinion piece by Licia Corbella (“Still digging out from Ed’s bad education deal”) published in the Herald, January 17. Corbella argued that the 2007 agreement between the government and the ATA to resolve the unfunded liability of the teachers’ pension plan was a bad deal for taxpayers. Read Corbella’s column here.
There is some unfortunate confusion about the 2007 agreement reached by the Alberta government and Alberta’s teachers to settle an outstanding liability in the pension plan.
Licia Corbella’s column simply adds to the misunderstanding. There are three significant errors in Corbella’s article that must be refuted. The facts are that the 2007 pension deal benefited taxpayers, teachers were not responsible for the pension liability and teachers did contribute financially to the resolution of the problem.
The 2007 agreement saved taxpayers and the government of Alberta $45 billion in payments on a debt that was to be amortized over 52 years. The agreement is akin to refinancing your mortgage to increase payments and reduce interest costs at a time when you can afford to pay your house down faster. This decision reflected prudent long-term financial planning on behalf of tax-payers.
To understand the pension settlement thoroughly, it is important to understand how the liability came about. The teachers’ pension plan was established in 1939, and from 1939 to 1956, the government and teachers made equal contributions to the plan. From 1956 to 1966, the government started to pay out pension benefits from the funds already contributed to the plan and, in 1966, stopped contributing to the plan altogether. In that time period, teachers continued to contribute to the plan, but they did not contribute enough to sustain the benefits payable from the plan.
In 1992, teachers and government signed an agreement that specified equal payments high enough to meet the actuarial value of all benefits to be paid.
They also agreed that the payments for service earned prior to 1992 would be allocated one-third to teachers and two-thirds to government and that the risk attached to the liability would remain the sole responsibility of government.
By 2007, the liability had ballooned to over $6 billion, and the five-year agreement was struck to resolve the unfunded liability issue. This agreement provided that the government would assume the $2.1 billion liability that would otherwise have been funded through future teacher contributions, but it also allowed the government to restructure its own liability and to reduce the 52-year amortization period of the debt. The real value for taxpayers comes from the rearrangement of the amortization, which is saving government $45 billion over the length of the term. (For more information on teacher pension plan liability and how the 2007 agreement benefited tax-payers, go to http://education.alberta.ca/media/658265/ faqs.pdf.)
Government assumption of the teachers’ liability did not come without a trade-off from teachers. In 2007, most other public sector workers received six per cent increases (less than increases received in the private sector), whereas teachers received a three per cent increase. The pension savings for teachers amounted to around three per cent of salary, so it is easy to argue that teachers gave up a salary increase to fund the assumption of their pension liability by the government.
Future salary increases over the life of the term were to be determined by the Alberta average weekly earnings, which at the time of the agreement, was below inflation. This meant that teacher salaries would only increase to the same degree that other Albertans’ salaries also increased. Corbella’s argument that teachers received raises while taxpayers faced stagnant wages is just plain wrong. Determining salary increases by tying them to a neutral statistical index was a fair way of doing so over the remaining years of the agreement.
One other value of such a long-term agreement is workforce stability and predictability of costs. In signing the 2007 agreement, teachers were concerned about long-term funding for education, so they secured a commitment from then premier Ed Stelmach stating that he would fully fund the agreement and maintain class sizes in Alberta’s schools. The quality of classroom conditions is always at the forefront of teachers’ minds. Last year’s cuts to education were a result of underfunding to school boards, and teachers appreciate Premier Alison Redford making good on the funding commitment and attempting to restore stability in public education.
The 2007 pension agreement was made in good faith by teachers and government. Though neither party could have predicted the short-term economic developments that affected government revenues over the past three or four years, the agreement continues to make good financial sense and will serve the province well as we return to prosperity. Simple-minded ideologically driven critics of the agreement would have Albertans believe that crafty teachers somehow tricked a gullible provincial government into paying them billions.
This is simply not true. The fact is that the ATA and government worked hard to solve a problem that was bad for both parties. We achieved an agreement that would serve teachers and taxpayers well.
