Final word on DB pensions....

[Obvious Li]

too lazy to find the original thread but for everyone, except RW, this should give you the definitive answers on the subject.....RW and Romero are true believers and logic and facts have no place in their thinking about any given topic.....



Take the mother of all defined benefit pension plans, the federal Public Service Pension Plan. The PSPP covers nearly half a million active and retired members. The annual cost of PSPP pensions is estimated to be about 20% of pay with employees paying about 8% (and rising), leaving the government, and ultimately the taxpayer, to pay the other 12% of pay. This cost estimate, however, is based on the plan earning a real return (net of inflation) of 4.1% whereas the risk-free rate earned these days is less than 1%.



Herein lies the problem: if the pension cost were determined using the risk-free rate, then the total cost would be closer to 44% of pay, or 24% of pay higher than the above estimate. Hence, the government's share of the true pension cost in the PSPP is about 36% of pay, which is about 30% of pay more than the average pension cost in the private sector.

Related



    study

   

Detailed studies have shown that the cash compensation of federal public sector workers (below the executive level) is comparable to, or slightly in excess of, cash compensation in the private sector. This excludes pensions. The cost of pensions is an element of compensation which we shouldn't ignore, as Mr. Yussuff would agree since he makes it a point to identify pensions as deferred wages. On a total compensation basis, the conclusion is that federal public sector workers are overpaid by about 30%.



We got to where we are because of the opaque nature of defined benefit pension plans. Pension costs are easy to ignore and hard to understand. Bringing public sector compensation back into line would require one of the following actions: (a) sharply reducing cash compensation, (b) severely cutting pension benefits or (c) converting defined benefit pensions to target benefit pensions. The first two options are draconian and almost certainly unworkable. The third is ultimately necessary if real interest rates stay so low.



The key message here is that the value of defined benefit pensions for compensation purposes should be determined using risk-free real rates of return rather than an estimate of what a risky portfolio will earn (4.1% in this case). Unions will of course argue that the 4.1% rate is more appropriate in determining pension cost since it is a best estimate so there is a good chance that the pension assets will actually earn that rate of return. If they truly believe this to be the case, then they should have no problem with target benefit pensions. The fact they do have a problem with target benefit is tacit acknowledgement that the actual real return might be less than 4.1%, which will lead to a future deficit that they would like someone else to pay.



Workers understandably want an iron-clad guarantee that their full benefits will be paid, regardless of what capital markets do, but pricing this properly requires costs to be determined using the risk-free discount rate (1%). In the case of the PSPP, we end up with the startling result that the cost of the guarantee is higher than the best estimate cost of the pension being guaranteed (24% versus 20%). And what price does the federal government place on this guarantee when setting compensation? 0%. It is natural that any participant of such a defined benefit plan would want to maintain the status quo.



And this is why defined benefit plans are dying. Such plans do not fit in well with a total compensation approach to setting wages. A growing number of plan sponsors are realizing that the true cost of guaranteeing DB pensions is not only very high, it is much higher than employees would voluntarily accept if high pension costs automatically triggered reductions in cash compensation.



The above arguments are laid out in considerable detail, and with unrelenting logic, in two C.D. Howe commentaries written recently by Malcolm Hamilton. These should be required reading for anyone involved in negotiating pension benefits, regardless of which side of the bargaining table they are on.



Note that the federal PSPP is one of the more egregious examples of undervaluing the pension promise. Most provincial public-sector pension plans are governed more responsibly in the form of Jointly Sponsored Pension Plans where the true cost lies somewhere between the cost of a traditional DB plan and that of a target benefit plan.



As a final observation, it is ironic that while labour groups dislike target benefit plans, they are pushing hard for an expansion of the Canada Pension Plan which is itself a target benefit plan.

[Romero]

Those good ol' "hidden costs" again. If they're hidden, who do they know they even exist?



"Canada Pension Plan's hidden costs make it three times more expensive to run than reported"



Bull. Again, you can't claim there are hidden costs if you don't even know they exist. Those expenses have to come from somewhere and it's not as if they can all just hide it.

[Obvious Li]

Those good ol' "hidden costs" again. If they're hidden, who do they know they even exist?



"Canada Pension Plan's hidden costs make it three times more expensive to run than reported"



Bull. Again, you can't claim there are hidden costs if you don't even know they exist. Those expenses have to come from somewhere and it's not as if they can all just hide it.

i think you've outdone yourself this time homy.....follow me pls....the govt. is afraid if the public really knew what these parasites were getting for pensions there would be riots in the streets....it hides the true cost of pensions for govt. union slugs by fudging the reports.....some bright guy decides to take a closer look and figures out the true cost and reports it in the newspaper...ergo..they are no longer hidden....what was lost is now found...getting it yet

[Anonymous]

Those good ol' "hidden costs" again. If they're hidden, who do they know they even exist?



"Canada Pension Plan's hidden costs make it three times more expensive to run than reported"



Bull. Again, you can't claim there are hidden costs if you don't even know they exist. Those expenses have to come from somewhere and it's not as if they can all just hide it.

i think you've outdone yourself this time homy.....follow me pls....the govt. is afraid if the public really knew what these parasites were getting for pensions there would be riots in the streets....it hides the true cost of pensions for govt. union slugs by fudging the reports.....some bright guy decides to take a closer look and figures out the true cost and reports it in the newspaper...ergo..they are no longer hidden....what was lost is now found...getting it yet

If Canadians actually knew how much snivel serpents pensions actually cost taxpayers there would be riots in the streets. Why the hell should my son have a financial burden placed around his neck as soon as he is born, so that unionized government workers can receive a pension nobody else gets? A total scam and now the truth is coming.



Good work OL :)  :D  :D  :D

[Romero]

the govt. is afraid if the public really knew what these parasites were getting for pensions there would be riots in the streets....it hides the true cost of pensions for govt. union slugs by fudging the reports.....some bright guy decides to take a closer look and figures out the true cost and reports it in the newspaper...ergo..they are no longer hidden....what was lost is now found...getting it yet

There is no evidence and no way to fudge the reports. That extra money would have to come from somewhere. They can't make it out of thin air.



That's why "some bright guy" calls the costs "hidden". He can't prove they exist.



What they get for pensions is right on their pension checks. People would easily find out if they were getting more than they should.

[Anonymous]

the govt. is afraid if the public really knew what these parasites were getting for pensions there would be riots in the streets....it hides the true cost of pensions for govt. union slugs by fudging the reports.....some bright guy decides to take a closer look and figures out the true cost and reports it in the newspaper...ergo..they are no longer hidden....what was lost is now found...getting it yet

There is no evidence and no way to fudge the reports. That extra money would have to come from somewhere. They can't make it out of thin air.



That's why "some bright guy" calls the costs "hidden". He can't prove they exist.



What they get for pensions is right on their pension checks. People would easily find out if they were getting more than they should.

Every person in Canada is on the hook for an extra $9,000 to pay for the $300-billion (or more) in unfunded promises to public sector pension plans. The shortfall exists even though public sector employers (tax-paying folks like you and me) injected an extra $1.27-billion a year into these plans between 2001 and 2010, and that's on top of the large sums governments and public sector workers are already paying toward their pensions.

[Romero]

The key message here is that the value of defined benefit pensions for compensation purposes should be determined using risk-free real rates of return rather than an estimate of what a risky portfolio will earn (4.1% in this case).



Workers understandably want an iron-clad guarantee that their full benefits will be paid, regardless of what capital markets do, but pricing this properly requires costs to be determined using the risk-free discount rate (1%).

The article is just assuming the return will be 1% in the future, but there's nothing indicating it will be.

Year at a Glance, 2012–13



The value of the public service pension plan net assets held by the Public Sector Pension Investment Board increased over the past year to $55.5 billion. The investment return for the year was 10.7 per cent, for an investment income of $5.1 billion after expenses.



http://www.tbs-sct.gc.ca/reports-rapports/pspp-rrfp/2013/images/figure8-eng.jpg">



http://www.tbs-sct.gc.ca/reports-rapports/pspp-rrfp/2013/rpspp-rrrfp-eng.asp">//http://www.tbs-sct.gc.ca/reports-rapports/pspp-rrfp/2013/rpspp-rrrfp-eng.asp

The return for the last fiscal year was 10.7%! Well above 4.1% and nowhere near 1%. It's only been growing since the recession. The article is assuming a worst-case scenario for the purpose of fear mongering.

[Chickenfeets]

Fiscal conservatives engage in fear-mongering?

[Anonymous]

Fiscal conservatives engage in fear-mongering?

It has nothing to do with conservatism or socialism. Kudos to the feds for making some reforms, but more radical change is inevitable. It doesn't matter which party wins either as eventually some government will be left with few other choices besides radical reform. You can't have 87% of the population's grandchildren financing golden db pensions they or their grandchildren will never receive themselves.  



While private-sector pension levels have remained flat, there were 3.14 million Canadians entitled to a public-sector pension as of last year. That's an increase of 26.6% since 2001 — more than double the rate of growth in private sector employment. There are more government employees than 10 years ago, which means the public-sector pension problem is getting out of control.



Things are even worse in the United States and Europe as municipal, state and national governments come to grips with massive budget deficits and accumulated debts.

[Anonymous]

too lazy to find the original thread but for everyone, except RW, this should give you the definitive answers on the subject.....RW and Romero are true believers and logic and facts have no place in their thinking about any given topic.....



Take the mother of all defined benefit pension plans, the federal Public Service Pension Plan. The PSPP covers nearly half a million active and retired members. The annual cost of PSPP pensions is estimated to be about 20% of pay with employees paying about 8% (and rising), leaving the government, and ultimately the taxpayer, to pay the other 12% of pay. This cost estimate, however, is based on the plan earning a real return (net of inflation) of 4.1% whereas the risk-free rate earned these days is less than 1%.



Herein lies the problem: if the pension cost were determined using the risk-free rate, then the total cost would be closer to 44% of pay, or 24% of pay higher than the above estimate. Hence, the government's share of the true pension cost in the PSPP is about 36% of pay, which is about 30% of pay more than the average pension cost in the private sector.

Related



    study

   

Detailed studies have shown that the cash compensation of federal public sector workers (below the executive level) is comparable to, or slightly in excess of, cash compensation in the private sector. This excludes pensions. The cost of pensions is an element of compensation which we shouldn't ignore, as Mr. Yussuff would agree since he makes it a point to identify pensions as deferred wages. On a total compensation basis, the conclusion is that federal public sector workers are overpaid by about 30%.



We got to where we are because of the opaque nature of defined benefit pension plans. Pension costs are easy to ignore and hard to understand. Bringing public sector compensation back into line would require one of the following actions: (a) sharply reducing cash compensation, (b) severely cutting pension benefits or (c) converting defined benefit pensions to target benefit pensions. The first two options are draconian and almost certainly unworkable. The third is ultimately necessary if real interest rates stay so low.



The key message here is that the value of defined benefit pensions for compensation purposes should be determined using risk-free real rates of return rather than an estimate of what a risky portfolio will earn (4.1% in this case). Unions will of course argue that the 4.1% rate is more appropriate in determining pension cost since it is a best estimate so there is a good chance that the pension assets will actually earn that rate of return. If they truly believe this to be the case, then they should have no problem with target benefit pensions. The fact they do have a problem with target benefit is tacit acknowledgement that the actual real return might be less than 4.1%, which will lead to a future deficit that they would like someone else to pay.



Workers understandably want an iron-clad guarantee that their full benefits will be paid, regardless of what capital markets do, but pricing this properly requires costs to be determined using the risk-free discount rate (1%). In the case of the PSPP, we end up with the startling result that the cost of the guarantee is higher than the best estimate cost of the pension being guaranteed (24% versus 20%). And what price does the federal government place on this guarantee when setting compensation? 0%. It is natural that any participant of such a defined benefit plan would want to maintain the status quo.



And this is why defined benefit plans are dying. Such plans do not fit in well with a total compensation approach to setting wages. A growing number of plan sponsors are realizing that the true cost of guaranteeing DB pensions is not only very high, it is much higher than employees would voluntarily accept if high pension costs automatically triggered reductions in cash compensation.



The above arguments are laid out in considerable detail, and with unrelenting logic, in two C.D. Howe commentaries written recently by Malcolm Hamilton. These should be required reading for anyone involved in negotiating pension benefits, regardless of which side of the bargaining table they are on.



Note that the federal PSPP is one of the more egregious examples of undervaluing the pension promise. Most provincial public-sector pension plans are governed more responsibly in the form of Jointly Sponsored Pension Plans where the true cost lies somewhere between the cost of a traditional DB plan and that of a target benefit plan.



As a final observation, it is ironic that while labour groups dislike target benefit plans, they are pushing hard for an expansion of the Canada Pension Plan which is itself a target benefit plan.

I wonder what the state of our provincial plan is?

[Obvious Li]

too lazy to find the original thread but for everyone, except RW, this should give you the definitive answers on the subject.....RW and Romero are true believers and logic and facts have no place in their thinking about any given topic.....



Take the mother of all defined benefit pension plans, the federal Public Service Pension Plan. The PSPP covers nearly half a million active and retired members. The annual cost of PSPP pensions is estimated to be about 20% of pay with employees paying about 8% (and rising), leaving the government, and ultimately the taxpayer, to pay the other 12% of pay. This cost estimate, however, is based on the plan earning a real return (net of inflation) of 4.1% whereas the risk-free rate earned these days is less than 1%.



Herein lies the problem: if the pension cost were determined using the risk-free rate, then the total cost would be closer to 44% of pay, or 24% of pay higher than the above estimate. Hence, the government's share of the true pension cost in the PSPP is about 36% of pay, which is about 30% of pay more than the average pension cost in the private sector.

Related



    study

   

Detailed studies have shown that the cash compensation of federal public sector workers (below the executive level) is comparable to, or slightly in excess of, cash compensation in the private sector. This excludes pensions. The cost of pensions is an element of compensation which we shouldn't ignore, as Mr. Yussuff would agree since he makes it a point to identify pensions as deferred wages. On a total compensation basis, the conclusion is that federal public sector workers are overpaid by about 30%.



We got to where we are because of the opaque nature of defined benefit pension plans. Pension costs are easy to ignore and hard to understand. Bringing public sector compensation back into line would require one of the following actions: (a) sharply reducing cash compensation, (b) severely cutting pension benefits or (c) converting defined benefit pensions to target benefit pensions. The first two options are draconian and almost certainly unworkable. The third is ultimately necessary if real interest rates stay so low.



The key message here is that the value of defined benefit pensions for compensation purposes should be determined using risk-free real rates of return rather than an estimate of what a risky portfolio will earn (4.1% in this case). Unions will of course argue that the 4.1% rate is more appropriate in determining pension cost since it is a best estimate so there is a good chance that the pension assets will actually earn that rate of return. If they truly believe this to be the case, then they should have no problem with target benefit pensions. The fact they do have a problem with target benefit is tacit acknowledgement that the actual real return might be less than 4.1%, which will lead to a future deficit that they would like someone else to pay.



Workers understandably want an iron-clad guarantee that their full benefits will be paid, regardless of what capital markets do, but pricing this properly requires costs to be determined using the risk-free discount rate (1%). In the case of the PSPP, we end up with the startling result that the cost of the guarantee is higher than the best estimate cost of the pension being guaranteed (24% versus 20%). And what price does the federal government place on this guarantee when setting compensation? 0%. It is natural that any participant of such a defined benefit plan would want to maintain the status quo.



And this is why defined benefit plans are dying. Such plans do not fit in well with a total compensation approach to setting wages. A growing number of plan sponsors are realizing that the true cost of guaranteeing DB pensions is not only very high, it is much higher than employees would voluntarily accept if high pension costs automatically triggered reductions in cash compensation.



The above arguments are laid out in considerable detail, and with unrelenting logic, in two C.D. Howe commentaries written recently by Malcolm Hamilton. These should be required reading for anyone involved in negotiating pension benefits, regardless of which side of the bargaining table they are on.



Note that the federal PSPP is one of the more egregious examples of undervaluing the pension promise. Most provincial public-sector pension plans are governed more responsibly in the form of Jointly Sponsored Pension Plans where the true cost lies somewhere between the cost of a traditional DB plan and that of a target benefit plan.



As a final observation, it is ironic that while labour groups dislike target benefit plans, they are pushing hard for an expansion of the Canada Pension Plan which is itself a target benefit plan.

I wonder what the state of our provincial plan is?

the numbers will be smaller..but the abuses will be the same....it is all a ponzi sceme designed to rip off taxpayes and reward govt. workers by shielding the true cost of their employment......this has been going on for 40 years...fueled by govts. of every persuasion and completely and totally out of control...if left unchecked it will bankrupt the country......you are inadvertently contributing to the situation

[RW]

I'd debate this but I'm not going to put my knowledge base against media showmanship.  



I will say that they need to stop topping these plans up based on insignificant under valuation speculations.

[Anonymous]

too lazy to find the original thread but for everyone, except RW, this should give you the definitive answers on the subject.....RW and Romero are true believers and logic and facts have no place in their thinking about any given topic.....



Take the mother of all defined benefit pension plans, the federal Public Service Pension Plan. The PSPP covers nearly half a million active and retired members. The annual cost of PSPP pensions is estimated to be about 20% of pay with employees paying about 8% (and rising), leaving the government, and ultimately the taxpayer, to pay the other 12% of pay. This cost estimate, however, is based on the plan earning a real return (net of inflation) of 4.1% whereas the risk-free rate earned these days is less than 1%.



Herein lies the problem: if the pension cost were determined using the risk-free rate, then the total cost would be closer to 44% of pay, or 24% of pay higher than the above estimate. Hence, the government's share of the true pension cost in the PSPP is about 36% of pay, which is about 30% of pay more than the average pension cost in the private sector.

Related



    study

   

Detailed studies have shown that the cash compensation of federal public sector workers (below the executive level) is comparable to, or slightly in excess of, cash compensation in the private sector. This excludes pensions. The cost of pensions is an element of compensation which we shouldn't ignore, as Mr. Yussuff would agree since he makes it a point to identify pensions as deferred wages. On a total compensation basis, the conclusion is that federal public sector workers are overpaid by about 30%.



We got to where we are because of the opaque nature of defined benefit pension plans. Pension costs are easy to ignore and hard to understand. Bringing public sector compensation back into line would require one of the following actions: (a) sharply reducing cash compensation, (b) severely cutting pension benefits or (c) converting defined benefit pensions to target benefit pensions. The first two options are draconian and almost certainly unworkable. The third is ultimately necessary if real interest rates stay so low.



The key message here is that the value of defined benefit pensions for compensation purposes should be determined using risk-free real rates of return rather than an estimate of what a risky portfolio will earn (4.1% in this case). Unions will of course argue that the 4.1% rate is more appropriate in determining pension cost since it is a best estimate so there is a good chance that the pension assets will actually earn that rate of return. If they truly believe this to be the case, then they should have no problem with target benefit pensions. The fact they do have a problem with target benefit is tacit acknowledgement that the actual real return might be less than 4.1%, which will lead to a future deficit that they would like someone else to pay.



Workers understandably want an iron-clad guarantee that their full benefits will be paid, regardless of what capital markets do, but pricing this properly requires costs to be determined using the risk-free discount rate (1%). In the case of the PSPP, we end up with the startling result that the cost of the guarantee is higher than the best estimate cost of the pension being guaranteed (24% versus 20%). And what price does the federal government place on this guarantee when setting compensation? 0%. It is natural that any participant of such a defined benefit plan would want to maintain the status quo.



And this is why defined benefit plans are dying. Such plans do not fit in well with a total compensation approach to setting wages. A growing number of plan sponsors are realizing that the true cost of guaranteeing DB pensions is not only very high, it is much higher than employees would voluntarily accept if high pension costs automatically triggered reductions in cash compensation.



The above arguments are laid out in considerable detail, and with unrelenting logic, in two C.D. Howe commentaries written recently by Malcolm Hamilton. These should be required reading for anyone involved in negotiating pension benefits, regardless of which side of the bargaining table they are on.



Note that the federal PSPP is one of the more egregious examples of undervaluing the pension promise. Most provincial public-sector pension plans are governed more responsibly in the form of Jointly Sponsored Pension Plans where the true cost lies somewhere between the cost of a traditional DB plan and that of a target benefit plan.



As a final observation, it is ironic that while labour groups dislike target benefit plans, they are pushing hard for an expansion of the Canada Pension Plan which is itself a target benefit plan.

I wonder what the state of our provincial plan is?

the numbers will be smaller..but the abuses will be the same....it is all a ponzi sceme designed to rip off taxpayes and reward govt. workers by shielding the true cost of their employment......this has been going on for 40 years...fueled by govts. of every persuasion and completely and totally out of control...if left unchecked it will bankrupt the country......you are inadvertently contributing to the situation

I have a defined benefit plan Obvious Li, but we still save for our own retirements..



My husband doesn't have a defined pension plan, so he sets aside a percentage of his income.

[Anonymous]

Federal civil servants until recently only had to contribute 37% towards their own retirements. I work in financial services and my clients pay 100% for their retirements. Doesn't seem right that the civil service and politicians are getting something from us that we are not entitled to.

[Obvious Li]

I'd debate this but I'm not going to put my knowledge base against media showmanship.  



I will say that they need to stop topping these plans up based on insignificant under valuation speculations.

uh-huh..right..........Huffington Post/Georgia Straight ....good......everything else bad...lol :mrgreen: