Alberta teachers have an "unfunded liability" in their pension plan that goes all the way back to the plan's inception in 1939. How it's dealt with is now a $6.4 billion question.

Like many "defined benefit" pension plans, the teachers' pension plan started out much like a pyramid scheme. Those who were at the top (ie. those who retired right after the pension plan started) barely paid in anything before collecting their pensions. Those at the bottom of the pyramid (ie. new teachers) saw the money they paid into the plan used immediately to pay existing pensioners. And the cycle continued.

For many years the Alberta government use a "pay-as-you-go" model for teacher pensions (the same model used by the CPP for many years), not paying into a savings fund, but rather paying out directly to retirees. This, combined with major improvements to pension benefits (including the ability to retire earlier) without the needed increases to teacher contribution rates, led to a large unfunded liability.

In 1992, the Alberta Teachers' Association (ATA) and the Alberta government sat down to talk about the issue. The ATA, on behalf of teachers, agreed to accept one-third of the pre-1992 unfunded liability as their debt. The Alberta government, on behalf of taxpayers, agreed to accept two-thirds of the pre-1992 unfunded liability.

It's estimated the pre-1992 unfunded liability is currently sitting at a combined $6.4 billion. However, and importantly, this is two debts. Teachers have a debt of $2.1 billion and taxpayers have a debt of $4.3 billion.

As part of the 1992 deal, both parties agreed on a payment plan that would see the debt retired by 2060. It's estimated if both parties continue to slowly pay-off this debt the total cost will amount to $45 billion ($15 billion for teachers, $30 billion for taxpayers) by the year 2060. This, some argue, is the reason why the government should pay-off its portion of the debt sooner, rather than later. Doing so may make sense if early payment penalties are lower than the long-term debt servicing costs.

But here's the rub. The ATA says the government should pay-off the teachers $2.1 billion share of the debt as well.

Asking taxpayers to cover the teachers' portion of the unfunded pension debt is a very hard sell, especially considering less than 33 per cent of all Canadians have employer-provided pensions, and even less would have "defined benefit" pension plans like the teachers enjoy.

In fact, "defined benefit" pension plans have been on their way out in the private sector, mainly due to their large unfunded liabilities. Many have been replaced with "defined contribution" plans instead, where employers match employee contributions dollar for dollar into a retirement savings plan.

But, in order for taxpayers to even fathom a re-negotiation of the 1992 deal (which could cost Albertans $600 each), teachers would have to offer something very, very substantial in return.

In 2002, then Learning Minister, Dr. Lyle Oberg offered, on behalf of taxpayers, to take on the teachers' portion of the debt in return for ten years of labour peace. Incredibly, teachers rejected the offer. An offer that would have expired in 2012, 48 years sooner than the teachers are going to be able to pay-off the debt on their own.

As if the 2002 offer wasn't generous enough, the new Education Minister, at the direction of Premier Stelmach, has appointed a new task force to once again examine the potential of taxpayers taking on the teachers' debt.

It's puzzling why Premier Stelmach would have ever agreed to proactively re-examine this issue. The ATA already indicated the 2002 offer was unacceptable - a deal where teachers clearly were the winners. It's doubtful they're now willing to offer anything more.

Premier Stelmach should certainly entertain offers, but he must remember: this is not taxpayers' debt, it is teachers' debt.

He is in no way obligated to re-negotiate the 1992 agreement, it still stands today. Any offer from the teachers that doesn't put taxpayers in a significantly better position, must be rejected.