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Response to Councillor Gondek

June 18, 2018
Response to Councillor Gondek

Councillor Gondek recently published a post on Facebook that defended council’s golden pension benefits while criticizing CTF research into the matter.

It’s an odd post and it contains several errors, so I’ve decided to respond to her post here …

 

1) Claim: It was “convenient” for the CTF to “leave out” how it came to its conclusions that council’s pension is golden.

Perhaps the councillor missed it, but we issued an entire report that notes our position and research on council’s pension – click here.

We noted right near the beginning of the report that 76% of people working outside of government don’t have a workplace pension. None. They have to put aside some money each year and hope they have enough savings when it’s time to retire. In some cases their employer may match RRSP contributions but there’s no golden guarantee of payments.

In Edmonton, city council members aren’t guaranteed golden payouts either, but council members still enjoy a generous pension approach. In short, the City of Edmonton puts the equivalent of 12% of a council member’s taxable earnings into a defined contribution pension plan (or council members can receive 11% and invest it themselves).

Those funds earn interest over time and council members draw on those savings when it’s time to retire. However, if their fund loses value due to a recession – too bad, no one bails them out.

In Calgary, council members enjoy a golden “defined benefit” pension.

This type of pension guarantees payouts to its members when they retire (based on a specific formula). As a result, the plan’s bean counters have to regularly calculate future benefits and future payouts to determine whether or not the plan is sustainable.

Needless to say, that’s not an easy task. They have to make projections as to how much a council member will earn in the future, inflation rates, how long a council member will live and projections as to how well the fund’s investments will do.

Not surprisingly, far too often these projections go awry, the plans run short and taxpayers have to bail out the pension plans with additional lump sum payments and higher contribution rates.

For that reason we have advocated for governments across Canada to move away from costly defined benefit plans and choose the middle ground – a defined contribution approach similar to what Edmonton provides. As noted, it would still be more generous than what 76% of people working outside government receive.

 

2) Claim: You can’t compare a defined contribution pension with a defined benefit pension

Sure you can. Here’s what Edmonton and Calgary taxpayers had to pay over a ten-year period:

$1.3 million – Edmonton (click here)
$6.1 million – Calgary (click here)

Some members of Calgary’s city council like to claim the large sparks in annual spending on Calgary’s pension every few years shouldn’t be counted.

Yet, even if we ignore those payments, every single year between 2007-2016, Edmonton spent less than half of what Calgary spent on its council pension benefits.

If you look at the graph on page 6 of our report, you’ll see Edmonton’s council pension doesn’t have the same spending spikes that plague Calgary’s pension.

Which approach is better for taxpayers? Obviously it’s Edmonton’s.

Which approach is better for politicians? Obviously it’s Calgary’s.

 

3) Claim: Calgary has a “Council Compensation Committee Review” that is comprised of citizens and they make recommendations on council’s compensation so.

Councillor Gondek is right; such a committee is struck each term.

However, she glossed over a few important points.

As far as I’m aware, such a committee is a relatively new approach and wasn’t around when council’s costly pension was established back in 1989 … or when the second council pension was established in 1999. (Only the mayor qualifies for this plan)

Further, while this approach sounds good on the surface, note that the committee only comes forward with “recommendations.” If council doesn’t like one of the recommendations, they merely reject – as they did last year when the committee recommended eliminating council’s “transition allowance.” Just imagine if the committee recommended something more significant, such as reforming council’s pension. Some council members would go bananas.

On that note, I highly recommend reading this column that was written by Peter Bowal, the last chair of the Council Compensation Review Committee – “Citizen recommendations for council compensation don’t work”

In short, Bowal describes how council treated his committee’s work as a joke. He also described council’s pension as “very rich” and noted “Calgary’s elected officials arguably enjoy the best municipal overall employment benefits package in the country.” 

It’s also interesting to note that the City of Edmonton’s citizen-driven council compensation review committee concluded that the type of pension Calgary’s city council enjoys wouldn’t be “appropriate” for Edmonton’s council.

  

4) Claim: The city “needed” to make lump sum payments and over time the funding ratio is “2:1”.

I believe Councillor Gondek is correct in noting that council “needed” to make past lump sum payments. We’re not disputing that. I doubt they could have avoided them legally although I’m not 100% sure.

What we’re focussed on is prevention – how do we protect taxpayers from having to make similar lump sum payments again in the future?

If Councillor Gondek examines defined benefit pensions in greater depth she’ll find that such lump sum payments and/or higher and higher contribution rates are a common aspect of defined benefit pensions. (Hint: See the Local Authorities Pension Plan – the main plan for the City of Calgary)

In essence, people with no workplace pensions have to pay higher and higher taxes to prop up those with golden pensions. That’s hardly fair.

Further, her claim that over time the city contributes about $2 for every $1 contributed by council is also wrong. Over the 10-year period we examined, taxpayers put in just over $5 for every $1 put in by council members.

Guess what will happen if council’s pension runs into another recession and requires more money? You guessed it, taxpayers will again be required to step up with another large cheque.

5) Claim: The CTF's research is "fiction"

Councillor Gondek tried to dismiss our research by alleging it was "fiction."

In an era of people carelessly throwing around claims of "fake news," it's unfortunate that she would use this term. If she doesn't like our conclusion – so be it. If she has any specific examples of how our calculations are incorrect – I'm all ears.

But to allege our work is "fiction," without any examples of incorrect calculations, I don't think that contributes to this debate. She usually seems to rise above such mudslinging.

 

Conclusion:

Council’s pension cost more over the past decade than three other cities combined (Edmonton, Ottawa and Vancouver).

After just four years on the job, a councillor can expect over $290,000 in pension payments.

Calgary is also the only major city in Canada that we’re aware of that provides two pensions to its mayor. If Mayor Nenshi retires in 2021, we estimate he'll be inline to receive $1.4 million in benefits.

How on earth is any of this fair for taxpayers? It’s not.

We need to see wholesale reform, not tinkering around the edges.

Councillor Gondek may not realize it, but many families and businesses are still struggling … we hear from them all the time. Now is the time for council to lead by example and scale back its golden benefits. 

Councillor Jeromy Farkas has refused the council pension all together, noting it's far too generous. His efforts are admirable and represent a great example of someone leading by example.

However, we’re not advocating for council members to lose pension benefits they’ve earned to date. Nor are we saying council members shouldn’t have any pension benefits.

What we’ve advocated for is for council members to accrue benefits at the same rate as Edmonton going forward (which is far more reasonable for taxpayers).

It’s unfortunate that Councillor Gondek has instead taken the David Dingwall – “I am entitled to my entitlements” – approach.

Prior to getting elected she suggested council’s pension seemed “generous” and supported an examination of it.

I guess now that she’s receiving it, everything has changed.

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