Recently some AUPE members have become aware of a controversy regarding public sector pensions in Alberta.
Charges that public employees are being "cheated" of their pensions have been circulated on a Web site, by email, and through written material.
What follows is a preliminary attempt to answer the questions raised by concerned members.

Question: What’s causing all the uproar about our pensions?
Answer: A group called the Alberta Society for Pension Reform has begun a campaign challenging the rules of the Local Authorities Pension Plan (LAPP), the Public Service Pension Plan (PSPP) and the Alberta Teachers Retirement Fund (ATRF).
The Society has a number of issues with the regulations governing our pensions. Most importantly, however, they believe they have discovered a fundamental flaw in the way these pensions are calculated. In putting forward their views, the Society has used some very strong language. For example, a headline on an early version of their web page asked the question: "Are you being cheated out of your retirement by the provincial government pension plans?" A 60-page report by founding member Ken Smith is entitled "Broken Promises, Shattered Retirement Dreams." The issues the Society raises are important and complicated. They pose some fundamental questions about the nature and content of our pension plans.

Question: Are we being "cheated" on our pensions and is the "pension promise" being broken?
Answer: No to both these questions! The rules of the pension plans aren’t perfect by any means, but they are a fair and honest attempt to provide a guaranteed retirement income. When you read the Society’s brief carefully, it becomes clear that their complaint is not that the rules of the pension plans are being applied wrongly, but that they disagree with what the rules say.
Nobody is being cheated, and if the Society feels that the pension promise is being broken, it’s because they disagree with many others about what the "pension promise" means. Our plans are designed to give us a pension (when combined with the Canada Pension Plan) of approximately 70 per cent of our pre-retirement income after 35 years of employment at age 65. This is the pension promise, and in most cases the plans deliver on that promise.

Question: Is there a flaw in the pension regulations?
Answer: The "flaw" in our pension plans is that they aren’t top-of-the-line models, they’re mid-line plans. It is easy to point out ways the plans could be improved. They could index benefits to 100 per cent of inflation (rather than the current 60 per cent) for example. They could raise the basic benefit level to 2 per cent per year of service and not have to worry about blending with the Canada Pension Plan. That would eliminate one of the Society's basic concerns. Unfortunately changes like these can be very expensive. Employers and employees alike are sometimes reluctant to accept large increases in pension contribution rates.

Question: Are some pensioners paying for benefits they don’t receive?
Answer: In a defined benefit pension plan you don’t "buy" a specific benefit. All employee and employer contributions go into a fund used to provide benefits for all participants.

Question: Does this mean that some plan participants are subsidizing others?
Answer: There are all kinds of cross-subsidies in the pension system. For example:
a) A retiree who lives to age 90 takes a lot more money out of the plan than one who dies shortly after retirement.
b) People who retire early from our plans pay a penalty of 3 per cent for each year they are short of the 85 factor. From a strict actuarial point of view, this penalty should probably be closer to 6 per cent per year. So the plan subsidizes early retirement.
c) The plans are designed to blend with the Canada Pension Plan. Retirees who are receiving CPP are being subsidized by all those currently paying the very high CPP premium rates.
The point is that our pension plans are like our benefit plans – they are like a form of insurance. We pool our contributions and share the financial risk in order to be able to guarantee a retirement income for all. It’s this sharing of contributions and of financial risk that allows the plans to guarantee our pensions, regardless of what happens in financial markets.

Question: Are there other issues with regard to the pension plans?
Answer: There are many other issues. The Society has raised some of them. One issue that surfaced a couple of years ago revolved around inconsistent wording in the regulations that led to a "mismatch" between a participant’s highest five years average earnings and the Year’s Maximum Pensionable Earnings (YMPE) used to calculate the size of the pension benefit. This "mismatch" cost participants retiring after the 5 per cent wage rollback approximately 2-3 per cent of their pension entitlements.
The Boards of both the LAPP and the PSPP asked then Provincial Treasurer Stockwell Day to rectify the problem. He, however, declined to authorize what he considered to be a "benefit enrichment" while the plans still had unfunded liabilities. AUPE President Dan MacLennan wrote the Treasurer in July of 1998 and pointed out that the changes requested were not a benefit enrichment "but rather the correction of an unforseen flaw in the regulations which has unfairly penalized retiring workers." Treasurer Day responded to AUPE by agreeing to reverse his decision (noting that the plans had become fully funded in the meantime). This was a significant victory for participants in the plan. Unfortunately the Treasurer did not make the change retroactive.

Question: Is the Alberta Society for Pension Reforms simply wrong about the pension plans?
Answer: No! It's legitimate to ask questions about our pension plans, and AUPE encourages members to push for improvements to the LAPP and PSPP. AUPE believes the Society took a wrong turn when it focussed its attention on the alleged "flaw" in the pension plan, and we don’t believe that a court challenge to the plan rules is the way to go. But it’s perfectly fair for the Society to raise questions and push for improvements to the plans.

Question: What about other proposals such as a "bridge benefit"?
Answer: Any discussion of changes to the plan have to take two factors into account. First, improvements will cost money, and may cause contribution rates to increase. For example, the Society has urged the plans to adopt a "bridge benefit" to enhance the benefit available to those retiring before age 65. A number of other public sector pension plans in Canada have such benefits. The problem is that a bridge benefit is an expensive improvement, and might lead to a substantial increase in employee and employer contribution rates. It's also a change that only benefits some people, while the costs would be borne by all contributors. That doesn't mean a bridge benefit is a bad idea, just that it's not a simple solution to the pension problem. The second factor to consider is that any change to the plans has to be approved by the provincial Finance Minister. The existing legislation gives the Minister absolute final authority. In the past, the Minister has refused to permit improvements to the plans recommended by the Pension Boards.

Question: What can be done to improve our pensions?
Answer: The AUPE Pension Committee is working with pension experts and union nominees to the Pension Boards for improvements to the plans. As part of the Labour Coalition on Pensions, we are working to take the Local Authorities Pension Plan "out of statute" and make it an independent, jointly trusteed pension plan. Getting some measure of control over out pensions is the first step toward improving them.