The Federal Public Service Superannuation Plan: A Reform Agenda (2012)

There is a need for comprehensive reform of the federal public service pension plan that takes into account the long-term fiscal, demographic and human resource management context facing the government.Le regime de pension de retraite de la fonction publique federale a besoin d'une reforme globale qui tient compte des questions de finances, de demographie et de gestion des ressources humaines auxquelles fait face le gouvernement sur le long terme.SummaryIn the current economic and fiscal environment, Canada's public sector pension plans have come under significant scrutiny. Critics have argued that these generous defined-benefit pension plans are inequitable, because the benefits they offer are vastly superior to those in the private sector at a public cost that is understated and unsustainable. This has led some to suggest that plans for public servants be brought more in line with private sector defined-contribution plans, where workers bear the risks of underfunding. Proposals to increase the retirement age and the share of costs borne by employees have also gained traction.As governments across the country move toward public sector pension reform (Canada, Ontario and New Brunswick announced important changes in 2012; Quebec is still examining the options), it is important to put these issues in perspective. In this study, pension expert Bob Baldwin analyzes the federal Public Service Superannuation Plan (PSSP) as a case study of the broader policy issues in the context of these reforms.Moving beyond the simplistic comparison of the public and private sector pension landscapes, Baldwin critically assesses the long-term fiscal, demographic and human resource management context facing the PSSP and the public service more generally. He finds that the PSSP is indeed more generous than other plans, and he suggests that reforms should focus on making the plan more consistent with other public sector plans in Canada and with workforce renewal objectives. This means that more significant reform is required than was announced in the 2012 federal budget.An important aspect of Baldwin's analysis relates to the plan's affordability and cost-effectiveness relative to the basic objective of retirement saving, which is to balance pre- and postretirement living standards. He argues that the cost of consumption forgone today to pay for PSSP benefits upon retirement is approaching a tipping point. The cost of benefits may be too high relative to their future value in retirement.Given this imbalance, he argues, reform should be of interest to both the employer and the employees. This suggests that policy-makers need to target the overall cost of the plan - forecast to be 20 percent of pensionable payroll in 2013 and rising - not just how costs are shared between employers and employees.As for establishing what the value of retirement benefits should be in the future, Baldwin recommends that this calculation be part of a more systematic approach to total compensation (wages plus all benefits). In the context of an aging workforce, where attracting and retaining workers is likely to become a more significant concern, the federal government should resist completely moving away from the PSSP's defined-benefit structure. Instead, Baldwin recommends it adopt a framework similar to the jointly sponsored/jointly governed model (with joint cost- sharing) that is prominent in Ontario's broader public sector, as in the Ontario Teachers' Pension Plan. This approach would enable the government to share the risk of future shortfalls equally with employees while maintaining leverage over the retirement age of its workforce.ResumeDans la conjoncture economique et financiere actuelle, les regimes de retraite du secteur public canadien sont plus que jamais scrutes a la loupe. Selon leurs critiques, ces regimes a prestations determinees seraient inequitables parce que leurs versements sont beaucoup plus eleves que dans le secteur prive et que leur cout public est a la fois sous-estime et non soutenable. …