1. Prior to 1970, teachers had no Cost of Living Allowance (COLA), and had
never had one! In 1972 the
Schreyer government decided that it would pay a full COLA to
all retired teachers, paid retroactively
for all retirees.
2. It didn't take long for government
to figure out this was way too expensive for it to continue.
3. The1976 "Pension In Trouble
Campaign" resulted in a 1977 deal. The agreement was about COLA -
it was a first step, and the government agreed to keep
talking about COLA in order to make it work.
4. The COLA as a result of "The Deal"
is the wording still in effect today; the Plan will pay what it can
afford. Records show that meetings were held, emerging problems
were discussed, improvements
were devised, and some changes flowed. The COLA was paid out, but
there no change to the way
it was funded nor paid out. Nevertheless, "The Deal" seemed to be
working at the time.
5. Teachers agreed to increase their
contributions by 16%, to forego a death benefit (reinstated by
the Pawley government in 1985), and to have no disability
pension requirement (think Long Term
Disability Plan).
6. Teachers also gained a third
presence on the Teachers Retirement Allowances Fund Board (TRAF).
7. The government assumed
responsibility for funding half of the benefits accrued in the main pension
account (Account A) and for funding half of the benefits
accrued in the PAA. It met these obligations
on a pay-as-you-go basis. It also agreed to create a
Teachers' Pension Task Force to meet and
discuss pension issues with The Manitoba Teachers' Society
(MTS). These details are significant
because the civil service was also getting its pension plan
constructed, and it is important to
remember that theirs is different from the teachers' for a
reason. Namely, they wanted a disability
pension requirement, and less COLA; teachers wanted a full
COLA, gave up the disability benefit,
and funded it themselves (now known as the LTD Plan).
8. As a result of deliberations at the
Pension Task Force, the PAA was established to finance COLA
payments, initial funding supported by four annual transfers from
Account A.. Teachers agreed
to higher contribution rates to achieve a higher COLA., and to fund
half of a COLA by contributing to
a Pension Adjustment Account (PAA).
9. Difficulties with the Plan design
became apparent over the next few years. These were:
The number of active teachers
compared to retired teachers. In 1977, there were seven active teachers
contributing money to pay COLA for every one retiree. Teachers in 1977
paid into the PAA nearly 300% of the actual COLA monies paid out in that
year. It was still not enough because the plan must set aside any COLA
increase for the estimated life of the recipients. Consequently, there
were special transfers from 1977 until 1980 from the main pension account,
Account A, to help with the funding of COLA.
Currently, the ratio of active to
retired is less than 2:1. Unlike 1977, when teacher contributions greatly
exceeded the COLA paid out, for the 2003 active teacher contributions were
only 53.45% of the COLA paid out. The other 46.55% came from surplus
interest. The 1977 contributions, plus a special transfer, paid out a
98.1% COLA. In 2003, retirees received a 1.68% increase which was 43.3% of
the CPI.
10. This COLA Plan design fault was
known from the beginning. The PAA is valued each year by
an actuary to see if the Plan can afford to pay a
COLA, and, if it can, how much. Since at
least 1987, the Plan' s actuary highlighted the
funding of COLA as a problem. 1989, for example,
was the last year that teacher contributions to
the PAA exceeded the COLA amount paid out.
There was ample warning.
11. During the Filmon Conservative government
years, there were almost no pension
discussions between the government and teachers. According to MTS, there
was almost a
decade when the government of the day refused to call a meeting of the Teachers'
Pension
Task Force . The funding of COLA was a ticking time bomb.
12. In 1977, and from 1984 to 1998,
the PAA supported full or almost full COLA grants. From 1977
to 1991 the PAA supported COLA grants up to a
range of 5% to 6% CPI and twice, 7% CPI.
Only the period of high inflation 1978 to 1983)
resulted in a variation from the above pattern of
COLA payments B when CPI ranged from
approximately 9% to 12%, and the percentage of
CPI granted ranged from 46% to 77%.
13. During the 1980s and early 1990s
when the PAA was being credited with double digit interest rates,
people were thinking that investment returns would
solve the Plan' s problem with paying COLA.
Rather than prudently looking at the way the Plan was
operating and considering future long-term
probabilities, folks were diverted by the high
financial returns.
14. From 1999 to the present, the ability
of the PAA to support CPI COLA grants has steadily declined.
The current government has met with the Pension Task
Force, but its willingness to act seems
muted. The PAA funding continues to be unable to supply
a reasonable and fair COLA. In 2001,
$17.6 million was
allocated from surplus to allow for COLA payments in 2000, by legislative
amendment. In 2003 it only paid
43% of CPI COLA ,and in 2004 a 27% of CPI COLA.. In May of
2004, the General-Secretary of MTS
advised teachers that the PAA could only fund "half of 1%"
at best for the foreseeable
future! This was occurring at a time of relatively low inflation.
15. In March, 2007 the N.D.P.
government announced its intention to provide $1.5 billion to the trust
account as a way to reduce most of its unfunded
liability, continuing the action started in 2000 by
setting up this account. The provincial funds
will be invested on the same basis as the TRAF Fund.
Existing pensions are unchanged. The formula is
also unchanged. The implementation of this
funding will have no impact on the pension
payment or the COLA.
A. Considering the history, retired
teachers have a legitimate expectation to have a reasonable COLA.
Not addressing this expectation would be a significant
reduction in benefits from those benefits
intended in the 1977 solution, despite actuarial warnings
since 1987.
B. In 1987, the TRAF Board actuary
warned that it would be unlikely that the PAA would be able
to finance COLA grants as favourable as the rates in the
past, should inflation rates be high.
Every subsequent Actuarial Valuation has flagged this problem
B but now the PAA is unable
to support a reasonable COLA grant, even in a period of
relatively low inflation. Considering
the earlier inaction by Governments which have imprudently ignored
and exacerbated these
problems, retired teachers have a legitimate expectation that these
problems be solved.
C. For the past decade, new entrants
have not been contributing at a rate sufficient to fund
their promised pension benefit, contrary to a principle of
pension plan design. Notional allocations
of surplus have been made to subsidize this shortfall. This
is a violation of a first principle of
plan design B contributions being set at a rate to support
the pension earned.
D. The allocation of surplus has been
a draw on plan assets, which has taken the plan further
away from surplus, which could have been used for helping to
solve the PAA problem. In effect,
new entrants have had access to plan assets to subsidize
their contribution shortfall while retired
teachers, with the exception of one special allocation
transfer, have not had access to plan assets.
E. There have been plan benefit
enhancements over the years which have benefited active teachers
(e.g. early retirement provisions) which have not been
funded by a contribution rate increase,
and, therefore, have been a draw on plan assets, thereby
putting the plan further away from
surplus. These have also resulted in an incremental cost to
the Province.
F. All these years there could have
been measures to solve the problem identified in 1987.
G. In 1977 there were retirees who had
never contributed funds to pay a COLA and were suddenly
eligible to receive one. There was just a year for the active
teachers to contribute funds to cover
the payout of a COLA, so the plan called for a modified
pay-what-you-can-afford system.
Active teachers would yearly pay half of a COLA to retired
teachers, and the government would
yearly pay the other half. The design called for one
generation of teachers to fund the COLA
of a preceding generation of teachers. Now, what
happens if a funding generation changes its
mind? What happens if a funding generation feels hard done by
and reduces what it is willing to
pay? Should a benefit as important as COLA be so dependent
upon "good will" rather than
being defined structurally and sustainable as a benefit
within the Plan?
H. Retired teachers expect fairness
and have a legitimate expectation that the problems of the PAA
be resolved and to have a reasonable COLA. While the
expectation of a full COLA may be
unrealistic at this time, retired teachers expect the bar to
be set higher for proposals
under discussion.
I. Retired teachers expect that any
resolution to the long standing problems of the plan are not made
at the expense of retired teachers. Retired teachers expect
even-handedness in addressing the
issues of active and retired teachers. Retired teachers expect full
consultation. RTAM believes
that the Province has the responsibility to demand compliance with
the above expectations to
ensure that decisions are fair and balanced to all parties.
