“The government is not responsible for changes to the retired B.C. Government Employees benefit package. There appears to be some confusion regarding this issue,” MLA Claude Richmond (Kamloops Daily News, January 20, 2003).
Indeed, there is some confusion regarding who is responsible for the decline of pension benefits for retirees. Richmond says “not us” but the facts speak otherwise. It’s a matter of cause and effect.
When the government increased health care premiums by 50 per cent, everyone had to pay more for health care including pension plans. Since pension funds have limited funds for benefits, coverage had to be reduced.
“It is entirely incorrect for Mr. Richmond to say categorically that the government is not responsible for the government employee health benefit package,” says the Chair of the Public Service Pension Board of Trustees, John Cook (KDN, February 8).
What’s remarkable about chairman Cook’s comments is that he can say them all without fear of loosing his job. It’s only recently that trustees have not been selected completely by government. Only a few years ago, trustees would not dare to criticize their political masters.
Most public pensions are now administered by a joint trusteeship – – a blend of employer and employee represented trustees. That makes sense when you consider that both pay into the pension fund.
The Liberals claim that they had to increase medical service premiums “in response to health-care costs that were out of control,” says Richmond in a subsequent letter to KDN. Compared to other countries, Canada’s health care costs are very reasonable.
Each of us paid about $2,500 for health care in 2000, compared to the United States ($4,700), France ($2,400) and Australia ($2,300), according to the Romanow Report (p. 33, all in U.S. dollars). The main problem with health care is declining revenue, not rising costs. Spending has been falling since 1993 due to a reduction in transfer payments by then finance minister Paul Martin.
Trustees who represent workers bring a new sensibility to pension boards. They ask some tough questions about the goals of investment. “Is it simply to do a better job in maximizing returns? Or is it to make more fundamental changes in the financial system – – a system that up until now has not had a worker-friendly agenda,” says Larry Brown, author of Money on the Line, Workers’ Capital in Canada.
One troubling dilemma for trustees is investment in corporations that profit from privatizing government services. These businesses make money by laying off workers who were paid decent wages and replacing them with minimum wage workers. Investment in these businesses betrays the very workers that the trustees represent.
Pension trustees have a legal obligation to maximize returns on investments. But when there is an equal choice between investing in companies that exploit workers and ones that are looking for solutions to environmental problems, the choice is easy.
Ethical considerations aside, pension boards are facing big problems. Canada’s largest pension fund, Quebec’s Caisse de depot, lost $8.55 billion in 2002. That meant a loss of 9.57 per cent of depositors’ assets and the worst annual performance in its history of the fund.
The Ontario Teachers Pension Plan (OTPP) lost $1.4 billion in its investment portfolio, a return of negative 2 per cent.
B.C.’s Public Service Pension Plan last year looks relatively good. But even that is source for confusion. Richmond says the growth last year was 3.7 per cent. Cook says that it was 8.5 per cent. Who is right? Both are. Cook is referring to a five year average ending in 2002. Richmond refers to only that year.
Cook is concerned with the long term health of the pensions plan. Richmond is making a political point. It’s important to understand that even when the stock market takes a dive, pensions are guaranteed. If necessary, workers and employers will pay more into the plan to cover pensions.
Pension benefits are not guaranteed, however. The Liberals have put more downward pressure on benefits by forcing public servants into retirement. As a result, there are more retirees and fewer contributors.
There is enough confusion to spread around. Pension boards must maximize profits while investing ethically; complex pension statistics are hard to interpret; and governments don’t seem to understand the cause and effect relationship of their actions.