Canadian Unions Seek Return of $26 Billion From Government

[scribblet]

I guess this is an example of how the Liberals balanced their budget, this is huge as it could effect the whole budget if the gov't loses. If this is true, they stole from gov't employees pensions. It could also result in a loss of jobs as they might have to be scaled back to pay for this as their pensions are guaranteed.

Canadian Unions Seek Return of $26 Billion From Government

By Joe Schneider

Feb. 26 (Bloomberg) -- Canada's government wrongly took more than C$30 billion ($26 billion) from employee pension funds to spend on programs and help balance the country's budget, a lawyer suing on behalf of the workers said at a trial in Ottawa.

The lawsuit, over funds seized in 1999, was filed by 18 unions representing 670,000 federal workers and retirees. Their pensions accumulated C$30.2 billion surplus, partly because worker contributions were calculated to include annual pay increases, the workers claim. Their wages were frozen for six years in the 1990s.

In 1999, Canada's government passed the Public Sector Pension Investment Board Act, allowing it to use the surplus for general spending and balancing the budget. The government is exempt from the Pension Benefit Standards Act, which limits employer access to federally registered pension plan surpluses.

-snip-

A loss by the government could erase Canada's budget surplus. According to projections by the Canadian finance department released Nov. 23, the fiscal year ending March 31 is forecast to show a surplus of C$7.2 billion. The surplus is forecast to rise to C$7.3 billion during the next fiscal year. Finance Minister Jim Flaherty has said his next budget will be released March 19.

http://www.bloomberg.com/apps/news?pid=206...ps&refer=canada

[Saturn]

Feb. 26 (Bloomberg) -- Canada's government wrongly took more than C$30 billion ($26 billion) from employee pension funds to spend on programs and help balance the country's budget, a lawyer suing on behalf of the workers said at a trial in Ottawa.

The lawsuit, over funds seized in 1999, was filed by 18 unions representing 670,000 federal workers and retirees. Their pensions accumulated C$30.2 billion surplus, partly because worker contributions were calculated to include annual pay increases, the workers claim. Their wages were frozen for six years in the 1990s.

In 1999, Canada's government passed the Public Sector Pension Investment Board Act, allowing it to use the surplus for general spending and balancing the budget. The government is exempt from the Pension Benefit Standards Act, which limits employer access to federally registered pension plan surpluses.

The interesting twist on this one (I read it somewhere. Can someone confirm?) is that not long after they took that "surplus" they increased the employees' contributions by 50% or something, either to make up for a deficit in the plan or to build up another surplus to take and use for other purposes.

Secondly, the Liberals didn't balance their budget. They had large surpluses that exceeded the pension "surplus" and the EI surplus.

Thirdly, I wouldn't worry so much about next year's budget. They will be suing each other and appealing decisions for the next 5 years at least.

[Riverwind]

In 1999, Canada's government passed the Public Sector Pension Investment Board Act, allowing it to use the surplus for general spending and balancing the budget. The government is exempt from the Pension Benefit Standards Act, which limits employer access to federally registered pension plan surpluses.

I heard an interview with a union rep and she made no mention of that. She just insisted that all money in the pension belongs to the employees. The argument is bogus because the gov't is on the hook for any deficit which means the gov't is entitled to any surplus. If the union does not like that they should negotiate a plan where the union takes responsibility for any plan deficit.

Secondly, the Liberals didn't balance their budget. They had large surpluses that exceeded the pension "surplus" and the EI surplus

So? Any surplus in the gov't employee pension fund belongs to the government. At the end of the year those surplus funds were spent on programs that benefited a wide cross section of Canadians.

[Shakeyhands]

within the law, sensible, and a non story, no matter which Government did it.

[August1991]

She just insisted that all money in the pension belongs to the employees. The argument is bogus because the gov't is on the hook for any deficit which means the gov't is entitled to any surplus.

That's my understanding too, Riverwind.

The civil service pension states the set obligations to pay amounts based on salary, years of service and so on. Civil servants pay into this and then are entitled to the pension. If there is a surplus or a deficit, pension obligations don't change.

Incidentally, the government has no reserve for this. This is why the idea of a government budget surplus or deficit is frankly meaningless. No one knows what the present value of all the government's future obligations is.

[geoffrey]

That's not at all how a private sector pension works, a company is absolutely not allowed to raid the surplus to pad their numbers.

Pensions are maintained by some sort of balanace between employer and employee contributions, when the pension is sitting in a surplus position, the employee contribution is expected to decrease (the employer can as well, if there is an employer contribution at all) to correct the difference. This brings the pension back into a balanced position by essientially refunding the overpayments by employees for their benefits.

My understanding on this is that Martin looked over at the pensions, said 'hey I need $30b' and just plucked 'em up. It's essientially a tax on only public service employees to do so, their additional contributions are kept for general government spending and in fact from my understanding their employee contribution ratio increased.

Nah, pension surpluses are for those who earned them as part of their compensation package... as it is in the private sector. The government has no business raiding pension surpluses.

It's a pretty dirty move no matter how you spin this one.

[Wilber]

If the surplus came from employee contributions it is most definitely their money.

[geoffrey]

If the surplus came from employee contributions it is most definitely their money.

Every contribution to a pension is an employee contribution at the end of the day, those contributions are part of their compensation agreements and should be respected in full. Even employer contributors are clearly an aspect of a compsenation package.

[sideshow]

If the surplus came from employee contributions it is most definitely their money.

Every contribution to a pension is an employee contribution at the end of the day, those contributions are part of their compensation agreements and should be respected in full. Even employer contributors are clearly an aspect of a compsenation package.

great point. because basically what an employer contribution is, is a deferred wage increase. so instead of "money now", the employee (though their union) negotiates the employer to put money into the pension plan so that they will have an income upon retirement.

if the plan happens to do exceptionally well, then that money should be the employees and the employees only. having said that, if the plan is doing exceptionally well, the employer could leverage this at bargaining time to their advantage by arguing for lower contributions-which saves the employer (government in this case) money.

and if the union was smart, they would accomodate the government in the good times (for the employees) so that in the tougher times there would be a bit more room to wiggle.

[Wilber]

While employee contributions and interest are completely off limits to companies, private plans only require that employers make up shortfalls. This can become a problem if companies go bankrupt. Employees RRSP contributions are limited because it is assumed there will be a company contribution. If the company goes away, that contribution is lost while the employee has been denied RRSP contributions during their working years. Not an issue with government pension plans.

[Saturn]

She just insisted that all money in the pension belongs to the employees. The argument is bogus because the gov't is on the hook for any deficit which means the gov't is entitled to any surplus.

That's my understanding too, Riverwind.

The civil service pension states the set obligations to pay amounts based on salary, years of service and so on. Civil servants pay into this and then are entitled to the pension. If there is a surplus or a deficit, pension obligations don't change.

Frankly, you two are losing it again. There are three important things to note here:

1) No entity in Canada other than the federal government can take money out of its employees' pension plan. Companies, provincial and municipal governments, etc. are not allowed to take money out of their pension plans mainly because pensions are deferred wages and since pension plans are directed by the employer, any deficit in a pension plan is due to the employer's inability to manage its pension plan. A defined benefit pension plan, generally, is simply an agreement between an employer and an employee to pay the employee a certain benefit at retirement against a) working for the employer and b ) a contribution to the plan (usually % of wages at a rate determined by the employer). If a surplus is accumulated, the employer can either leave it as it is or reduce its contribution and the employees contribution. Taking money out of a pension plan basically means that the employees are over-contributing and funding some other employer activity that their contributions are not meant to fund.

2) It isn't clear that this "surplus" ever existed. The "surplus" was computed (in part) based on salary increases that never transpired.

3) While the presence of a surplus normally means a decrease in contribution rates, the federal government increased contribution rates by some 50%. This means that there was a deficit in the plan that made it necessary to increase contribution rates to make up for that deficit (which is quite likely given the number of babyboomers retiring over the next several years). Or it means that the government was trying to build up another surplus to take out whenever it needs some funds. Either way, it suggests some pretty questionable intensions here.

Given the above, I'll agree with geoffrey, that they needed some money and figured that raiding their pension plans was a good place to get it. If they got sued (which it looks they did), it would take many years before they had to pay anything back (if it is determined that they should pay it back). So we can all have a drink thanks to the public service, RCMP and Canadian forces employees. A $1,000 drink that is.

Which leads me to EI. That's a $50+ billion surplus that has been spent long ago and continues to go into general revenue. If we end up in a recession, the government simply won't have the funds to pay EI (or will claim it doesn't have the funds) and will legislate its way out of it. Should EI be operated as a separate plan similarly to the CPP?

[noahbody]

She just insisted that all money in the pension belongs to the employees. The argument is bogus because the gov't is on the hook for any deficit which means the gov't is entitled to any surplus.

That's my understanding too, Riverwind.

The civil service pension states the set obligations to pay amounts based on salary, years of service and so on. Civil servants pay into this and then are entitled to the pension. If there is a surplus or a deficit, pension obligations don't change.

Frankly, you two are losing it again. There are three important things to note here:

1) No entity in Canada other than the federal government can take money out of its employees' pension plan. Companies, provincial and municipal governments, etc. are not allowed to take money out of their pension plans mainly because pensions are deferred wages and since pension plans are directed by the employer, any deficit in a pension plan is due to the employer's inability to manage its pension plan. A defined benefit pension plan, generally, is simply an agreement between an employer and an employee to pay the employee a certain benefit at retirement against a) working for the employer and b ) a contribution to the plan (usually % of wages at a rate determined by the employer). If a surplus is accumulated, the employer can either leave it as it is or reduce its contribution and the employees contribution. Taking money out of a pension plan basically means that the employees are over-contributing and funding some other employer activity that their contributions are not meant to fund.

2) It isn't clear that this "surplus" ever existed. The "surplus" was computed (in part) based on salary increases that never transpired.

3) While the presence of a surplus normally means a decrease in contribution rates, the federal government increased contribution rates by some 50%. This means that there was a deficit in the plan that made it necessary to increase contribution rates to make up for that deficit (which is quite likely given the number of babyboomers retiring over the next several years). Or it means that the government was trying to build up another surplus to take out whenever it needs some funds. Either way, it suggests some pretty questionable intensions here.

Given the above, I'll agree with geoffrey, that they needed some money and figured that raiding their pension plans was a good place to get it. If they got sued (which it looks they did), it would take many years before they had to pay anything back (if it is determined that they should pay it back). So we can all have a drink thanks to the public service, RCMP and Canadian forces employees. A $1,000 drink that is.

Which leads me to EI. That's a $50+ billion surplus that has been spent long ago and continues to go into general revenue. If we end up in a recession, the government simply won't have the funds to pay EI (or will claim it doesn't have the funds) and will legislate its way out of it. Should EI be operated as a separate plan similarly to the CPP?

[/quote

It's about time public sector works had to buy rrsps like the rest of us.

[Saturn]

It's about time public sector works had to buy rrsps like the rest of us.

Many probably would if they had the choice.

[scribblet]

Obviously there's a difference between federal and provincial pension legislation and surpluses. A few years ago Ontario decreed that anything over a certain amount of surplus had to be distributed back to the employees and retirees. (retirees got screwed, another story) IMHO it was a mistake as the markets dropped and changed the surplus status.

However if gov't guarantees the pensions, the employees aren't losing anything, it is the gov't which is on the hook for the unfunded liability - right? I still think it is wrong for any employer to raid the pension plans as you can never tell what will happen to the markets and investments.

This reminds me of the teachers pension plan which had a huge unfunded liability back when Rae was Premier. Bob Rae decreed that the taxpayers should kick in a billion or so so fund it.

[Saturn]

However if gov't guarantees the pensions, the employees aren't losing anything, it is the gov't which is on the hook for the unfunded liability - right?

Apparently it was the employees who were on the hook for it because in this particular case their contributions to the plan went up 50% to make up for that "surplus" being taken away.

[Hydraboss]

Pension fund surplus should not be accessable by the government. The feds grabbing it was about as sleazy as a bank taking the interest off my investments. What if the interest earnings were in the range of 8%? "Don't worry, you'll still get your principle plus the agreed 3%". How many of you would be okay with that scenario? Regardless of who manages the fund, surplus should be viewed as either overpayment or future fund security. Balancing a budget (or building a fountain in Kwebek) with the extra money should be criminal. Regardless of the who the government of the day happens to be.

[Wilber]

You want pension plans to remain in surplus. It only makes sense from a companies point of view. As long as the plan is in surplus they don't have to contribute anything. Redistributing surpluses back to employees is a mistake. A lot of companies took contribution holidays during the tech boom because plans had huge surpluses. All of a sudden the bubble burst, those same plans had big deficits and the companies were unable to make them up. The market has recovered but the fact that boomers are coming up to retirement will keep the pressure on.

Even if there is no chance of a government plan becoming insolvent, taking employee contributions to fund government operations amounts to nothing less than a special payroll tax on its own employees. It's a pay cut, pure and simple.

[Wilber]

It's another example of government practicing itself, something which could get someone in the private sector sent to jail.

[geoffrey]

Which leads me to EI. That's a $50+ billion surplus that has been spent long ago and continues to go into general revenue. If we end up in a recession, the government simply won't have the funds to pay EI (or will claim it doesn't have the funds) and will legislate its way out of it. Should EI be operated as a separate plan similarly to the CPP?

Insurance companies rarely if ever have the cash to pay out all their claimants. EI is similar, it is based on risk and they carry a certain about of liquidity to meet the risk of various economic situations. I don't think a surplus there is really a great idea, insurance companies pay out dividends to their shareholders all the time, the government should declare itself one too. As long as the policy is audited independantly and determined to be solvent within a reasonable risk range, the profits should go to the crown... or we should see our rates cut (much more my style of thinking).

[Wilber]

the profits should go to the crown... or we should see our rates cut (much more my style of thinking).

Unless you see EI contributions as just another income tax, the rates should be cut.

[sideshow]

Which leads me to EI. That's a $50+ billion surplus that has been spent long ago and continues to go into general revenue. If we end up in a recession, the government simply won't have the funds to pay EI (or will claim it doesn't have the funds) and will legislate its way out of it. Should EI be operated as a separate plan similarly to the CPP?

Insurance companies rarely if ever have the cash to pay out all their claimants. EI is similar, it is based on risk and they carry a certain about of liquidity to meet the risk of various economic situations. I don't think a surplus there is really a great idea, insurance companies pay out dividends to their shareholders all the time, the government should declare itself one too. As long as the policy is audited independantly and determined to be solvent within a reasonable risk range, the profits should go to the crown... or we should see our rates cut (much more my style of thinking).

I think that with the massive amounts of surplus that has been built up, there is no reason why the EI system can't be made into a solvent account. I don't think the profits should go to the crown, but I do think that the rates should be cut equally for the employer and employee. It helps everyone out.

[Saturn]

Insurance companies rarely if ever have the cash to pay out all their claimants. EI is similar, it is based on risk and they carry a certain about of liquidity to meet the risk of various economic situations. I don't think a surplus there is really a great idea, insurance companies pay out dividends to their shareholders all the time, the government should declare itself one too. As long as the policy is audited independantly and determined to be solvent within a reasonable risk range, the profits should go to the crown... or we should see our rates cut (much more my style of thinking).

I'd like to see the rates cut too. Currently, the government treats EI in a manner similar to a tax - the EI premiums just go into general revenue and are spent on other government priorities. Of course, there is nothing wrong with that. Any insurance company will do just the same. The problem with this scheme though is that the government makes the rules and can change the rules whenever and however it wants too. In the event of a recession, it is more likely that the government won't dip into it's pockets and pull enough to cover its EI claims (as it should). It will simply declare changes to the EI program that will leave the claimants (who have diligently paid their premiums for years or even decades) high and dry. If the government could be trusted to fulfill its obligations under EI, I wouldn't mind paying the high premiums. However, their actions in the last 15 years have shown that they cannot be trusted, so I'd rather see the EI premiums reduced. The government has better ways to raise revenue than a tax on employment.

[Saturn]

the profits should go to the crown... or we should see our rates cut (much more my style of thinking).

Unless you see EI contributions as just another income tax, the rates should be cut.

EI is not meant to be just another tax but the government has been treating it as such. It is a tax on employment and a very regressive one too. I think that the EI rates should be cut instead of cutting other income taxes by the corresponding amount.

[sideshow]

I agree with the last poster. I mean they raid the fund to balance the budget elsewhere, and then impose rate hikes which negatively affect both employers and employees. This is just not fair. If the purpose of the fund is to provide transitional income, then they should make the fund solvent, get their hands off of it, and surpluses should be used to ease the burden on the people that are paying into it-the workers and the employers.