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Ontario teachers have clearly gotten the message: Indexed pensions are no longer affordable. Now, if only someone would tell the federal government.
The teachers, who once enjoyed pensions that were fully protected from the impact of inflation, last month agreed with the province to make indexing fully conditional upon the financial performance of the Ontario Teachers' Pension Plan. Other public service pension plans in Ontario and other provinces have made similar changes.
For now, though, the federal government is showing no signs of making a similar move. It's difficult to see why. Removing guaranteed indexing for public-sector workers is a tough but necessary move that takes funding pressure off plan sponsors while leaving employee benefits well above the level of many private-sector employees.
In the case of Ontario teachers, the goal will still be to top up pension payments to make up for the effect of inflation, but that is no longer a guaranteed outcome.
The change is a recognition by teachers that something has to give – contributions have to rise, benefits have to fall, or some combination of both –if pensions are to be preserved in this era of low interest rates and low returns. Contributions can only go up to a point. In last year's budget, Ontario froze funding commitments in order to help reduce its deficit.
Private-sector workers, of course, can only sigh in envy. Outside of government, indexing of any sort is rare and the defined benefit plan itself is well down the road to extinction.
But while the private sector and many public-sector workers are bowing to reality, Canada's roughly 300,000 federal public servants continue to enjoy an exemption. They enjoy a very retro kind of pension – fat, fully indexed and largely paid for by taxpayers. Members of the Public Service of Canada pension plan ponied up just 34 per cent of their pension service costs in 2012.
Their benefits are also under pressure, but only mildly – the government is looking to gradually increase employee pension contributions until they equal those by the federal government and to increase the normal retirement age to 65 from 60, but only for new employees.
In last year's federal budget, the government promised to respect its pension obligations but to ensure that public-sector pensions are "fair relative to those offered in the private sector." It has yet to spell out what that means.
When federal public-service pensions are in deficit, it is the government that bears the full burden of covering the difference. As of March 2011 (the most recent date for which figures are available), the government faced a $4.4-billion deficit in the public service plan and another $500-million-plus in the RCMP pension plan. Those deficits have likely widened as interest rates have fallen.
Should taxpayers be expected to pay more to provide federal government employees with benefits that they themselves don't enjoy? The answer is clearly no.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.
Sean Silcoff