WAKE UP CALL ON TEACHER PENSIONS: THREE MAIN ISSUES
Prepared by Murray Smith (RTAM President, 1998/99)


The present teachers' plan has been achieved by decades of cooperation between MTS and government. It is truly one of the best pension plans in Manitoba and even in Canada, having some features which others can only hope for.  Think, for example, of how a Manitoba teacher can opt out of the profession for years (say for home responsibilities) and pick up pension credits from those early years when returning to work. Think of our option to retire as early as 55 without penalty because of age. Contribution rates are currently about the lowest in Canada.

Improvements have come about through negotiations between government and the MTS. This will happen again; we hope soon. This time retired teachers have input into the process. Changes we want may be developed during skilled negotiation, but their implementation in legislation could hinge upon the interest of the Legislature. So, we need to get teachers'  pensions on the agenda or within the view of MLAs.

Here are the three most important issues:

How TRAF is Governed
This refers to the structure for decision making and responsibility. At present, there is a TRAF Board of seven members of whom three are teacher nominees. Two members are MAST nominees. The chair and one other member are appointed by government on its own initiative. The investment committee has again only a minority of teacher representation. Although the teacher viewpoint is always well considered, in a crunch teachers could be outvoted. TRAF has no power to vary the provisions of the plan; that must be done by legislation.

The TRAF Board has developed a proposal for a new structure in which all essentials would be equally shared between government and teachers. The basic principle is to have equal power and equal responsibility to match it. There would be a Partnership Committee with equal numbers from each side and a mutually acceptable chair. This group would be a planning, policy and negotiating forum. It would have considerable powers to change the contributions and benefits of the plan. It is anticipated that MTS would appoint teachers or staff to this Committee, the point being to represent the teacher view and negotiate changes as appropriate. We hope one of these will be a retiree.

There would also be a TRAF Board, which would do rather what the present Board does, i.e. management and administration, but not policy. Again, there would be equal numbers, but to this Board MTS might well appoint investment experts rather than teachers or staff. Such arrangements are in place for some teacher plans; they seem to work well. The TRAF proposal has been endorsed by MTS and has gone to government for consideration. RTAM endorses this proposal for governance. A related issue is a proposal that government pay half the cost of plan administration; at present the teacher fund pays it all.

How Government  Funds Its Half of the Pensions
At present government pays its share of pension costs by providing about $11 million each month to cover half the cost of pensions currently in pay. This is sometimes referred to as 'pay as you go'. As the annual cost of teacher pensions rises, so will the annual Budget line for government, and the projections are quite scary. Teachers are insulated from these rapid rises because the money we pay as contributions prefunds almost all of the anticipated liabilities for expected retirements. The earnings on the teachers' TRAF fund provide a large part of what is needed, so current contributions bear only part of the burden. We say our side of the pension plan is prefunded and government's is not. This is really the unfunded liability; to which the Provincial Auditor has drawn attention, and which government would like to reduce overtime. If it does this for the teachers' plan it will no doubt do the same for the Civil Service Superannuation Plan, so it is a very large dollar problem. Nonetheless, there are proposals for achieving this with advantage to the province rather than damage. MTS and RTAM are supportive because we believe coping with this issue will provide extra security for our pensions.

What is Available to Provide Inflation Adjustments (COLA)
Although this looms very large to retired teachers, it is equally if not more important to those who will retire in the future. We retirees have had some years of adequate adjustments, but unless the Pension Adjustment Account funding is improved, there may be little in the future for anyone. Think of how long some of today's teachers may be retired and in need of inflation protection! That being said, it would be truly remarkable if the current problem were not solved; teachers consider it essential and government would not want  to be seen as refusing its half when the teachers are willing.

Some sources of  the problem are roughly as follows: more teachers are retiring earlier, salaries have dragged, improvements in the basic plan have not always provided for their impact on the PAA, the PAA rate of return is inappropriate, and the TRAF Board cannot go against  the current legislation.

A fixed portion, say 16.5%, of   teacher contributions goes into the PAA. This account also earns money on its assets. The two together are supposed to prefund any inflation adjustment awarded each July for the lifetime of all those to whom it applies. The TRAF Board can approve a COLA only if they are sure there will be enough money in the Account to pay the full consequences of all previous COLAs plus the new one.

When the PAA was established it was considered prudent that it should be allocated earnings on its funds on the basis of what is earned by only the fixed return portion of TRAF investments; this would be more secure than basing the amount on  the whole TRAF portfolio. The situation has changed in that the overall fund is doing better than the fixed return portion and that this portion is now being valued at its market value instead of what those bonds or mortgages cost when purchased. As interest rates change, these market values change. Recently  the market values have gone down so that the calculated return on these assets is currently negative; TRAF is still receiving the fixed return but the value of the investments has fallen. By contrast the return on the entire TRAF portfolio has been excellent. If the return credited to the PAA were based on  the overall return it would be something like 9% instead of zero or even negative. There is no longer any rationale for the original scheme and we believe that the PAA should share in the overall gains rather than suffer for the fixed return losses.

Another possibility is to use some of the present actuarial surplus, and perhaps of any future surpluses, to bolster the PAA. This is attractive, but of course any present surplus can disappear and future ones may never materialize. Further, TRAF cannot make such transfers; at present this can be done only by legislation. Nevertheless it is a promising idea. Finally, there is a proposal to raise contribution rates. This feels different in that this added cost would be borne by active teachers, rather than by funds already contributed. It is important to note that both the earlier suggestions use fund money which is 60% derived from teachers already retired. We have a much stronger claim to a voice in how fund  money is used, for example whether to provide COLA or to improve benefits in the basic plan.

It is essential to realize that the interests of active and retired teachers coincide. Active teachers want to have COLAs in their turn; retired teachers want the plan to be secure and well managed and the monies well invested. We should resist any attempt to suggest that retirees want actives to pay for our benefits. We have a lot of money in the fund and we are willing to bear a good part of any costs.

Contact the WEBMASTER for information regarding the use of  this website.