MPs Must Lead by Example on Public Sector Pension Reform

I support the provisions contained in this week’s “Budget Implementation Act” dealing with the reform of MP Pensions.  The following are my thoughts on the matter, originally posted January 19, 2012……

Perhaps no area of political discourse is more contentious than the issue of politician compensation. Regardless of whether elected officials set their own remuneration or whether they farm the contentious issue out to a committee of “experts”, invariably the result is generous compensation for elected officials and outrage from the public which pays it. The problem with setting compensation for elected officials is the lack of comparable benchmarks in the private sector.

Having been a lawyer and part-time lobbyist in the private sector and a MLA and MP in the public sector, it is difficult to draw benchmark comparisons between the various roles, duties, time commitments etc. Most MPs cite long hours, extended periods away from home and a brutal travel schedule as the least attractive aspects of our job. But these occupational hazards are not the exclusive obligation of elected officials; certainly Executives of successful corporations experience similar constraints on their time and personal lives. Others argue that the lack of tenure and potential for abrupt dismissal without cause requires attractive compensation to attract a high quality of candidates. Fair enough, but a fickle electorate is not necessarily more judgemental than a disappointed Board of Directors or a cranky boss!

So politicians’ lives and tenures may not be as unique as we sometimes think. That being said, MPs. MLAs, Mayors and Counsellors ought to be generously and competitively compensated. The key word is “competitively” not “outrageously”. In fact, the issue with the salaries of MPs rarely comes under much scrutiny and appropriately not, in my view. The base salary of $157k is, I suspect, comparable, and therefore defensible, compensation compared to jobs in the private sector with comparable duties and time commitments. In fact, a compelling argument can be made that the Prime Minister is grossly underpaid at $315k when compared to what CEO’s of major corporations in the private sector earn.

However, all comparisons break down quickly when the issue of MP pensions come under scrutiny. Few, if any, in the private sector enjoy defined benefit pension plans. Regardless of how markets perform, the entitlement that a MP enjoys is defined and constant, which means when markets perform as poorly as they have been, the entitlement has to be topped up in order to ensure the defined benefit is available. According to Canadian Taxpayer Federation calculations, the public contributions versus the recipients’ contribution vary from $5.80: $1 (official formula) to $23.30: $1, when markets perform dismally. By any objective standard, these defined benefit pensions are overly generous, without private sector comparison and create unsustainable unfunded liability.

All of that being said, in absolute dollar terms, the whole issue of MP Pensions is a bit of a red herring. With only 308 Members of Parliament, changing the MP Pension Plan from a defined benefit plan to a more affordable defined contribution plan is not going to make a significant or even noticeable dent in the country’s $580 billion dollar accumulated debt. However, there is a larger issue at play; an issue of leadership (a moral issue, if you prefer). The Federal Government MUST get its fiscal house in order. The Government cannot continue to run deficits in the range of $30B annually. The Government must reduce the size and cost of government to prevent unsustainable long term debt.

Federal public servants also receive generous pensions and benefits. In fact during my recent pre-budget consultations with the St. Albert Chamber of Commerce, I heard emphatically that public service pensions and benefits (not salaries) make it difficult for the small and medium size business sector to attract and retain qualified employees. Meanwhile, C. D. Howe has just released a report estimating the unfunded liability in the Federal Government Employee Pension Plans at $227 Billion. This must be addressed and addressed quickly if we are to return to balanced budgets anytime in the foreseeable future.

In the mid-1990’s, in Alberta, Premier Ralph Klein made significant cuts to the Provincial Budget. All Albertans, especially the public service, were asked to make sacrifices. However, before proceeding, Premier Klein attained the moral authority to do so by first cutting MLA pensions.

If the federal government is to require compromise on the pensions and benefits enjoyed by its 317, 000 civilian employees, Parliamentarians must lead by example and scale back our defined benefit plans. To ask our public servants to take less requires moral leadership. Parliament will have no moral authority on the issues of government restraint, generally, and public sector benefits, specifically, unless it has the courage to lead by example. Members of Parliament are considered to be leaders in society and moral leadership starts at the top.

“You can’t lead anyone further than you have gone yourself.” – Baseball Manager Gene Mauch

Brent