CALGARY, ALBERTA -- (Marketwire) -- 09/26/12 -- Canada's federal and provincial governments are facing a $254 billion unfunded liability as part of their share for public-sector pensions, says a new study from the Fraser Institute, Canada's leading public policy think-tank.

But policies adopted by Saskatchewan's 1977 NDP government provide today's politicians with a successful model for partly addressing future pension liabilities: shift public-sector workers to defined contribution pension plans and away from the current defined benefit plans.

"Allan Blakeney's NDP government foresaw the public-sector pension problem in the 1970s and took much-needed action to correct it," said Mark Milke, Fraser Institute senior fellow and co-author of Canada's $254 Billion Iceberg: Public-Sector Pension Liabilities.

"That foresight has resulted in considerably lower risk for Saskatchewan taxpayers and the government's budget, both today and in the future."

Co-authored with actuary Gordon B. Lang (F.C.I.A., F.C.A.), Canada's $254 Billion Iceberg: Public-Sector Pension Liabilities examines public-sector pension plans for which the federal and provincial governments are solely or jointly responsible. It looks at the "gap" between what such plans expect in contributions and investment returns, and expected future pension payouts.

Milke and Lang calculate that Canada's federal government alone currently faces $155.4 billion in pension liabilities, adding that "the $155.4 billion is the clearest example of an unfunded liability for taxpayers: the promise for defined benefit pensions has been made, but there are no assets behind that promise."

Of the provinces, Quebec faces the greatest reported pension liability at $75 billion.

Milke describes these public-sector pension liabilities as "icebergs" because they are rarely understood by the public, yet are costly and increasingly crowd out other priorities for tax dollars. As the Ontario government noted in its 2012 budget, such pensions "are projected to increase to levels that would crowd out spending for other programs."

The study notes that over the past decade, governments both in and outside of Canada have grossly underestimated the true of cost of pension commitments to public-sector workers. The norm has been hikes in contribution rates from taxpayers and public-sector employees to cover these costs. In addition, explicit bailouts of underfunded public-sector pension plans have occurred in Ontario, British Columbia, and Alberta, among other provinces.

"Saskatchewan stands as the one province that foresaw the looming problems with defined benefit pensions in the public sector. By moving to defined contribution plans, the 1970s-era NDP government took the necessary steps to protect future generations of Saskatchewan taxpayers," Milke said.

Disparity between the public and private sector

The study also looks at the growing disparity between pension plans in the public and private sectors in Canada. From 2010 data:

--  87.1 per cent of public-sector employees were enrolled in some type of
    registered pension plan compared to just 24.4 per cent of private-sector
    employees. 
--  Of those enrolled in a registered pension plan in the public sector,
    94.0 per cent were in a defined benefit; just 4.8 per cent were in a
    defined contribution plan, with 1.1 per cent in "other." 
--  Of those in the private sector enrolled in a pension plan, 52.3 per cent
    were in a defined benefits plan while 28 per cent were in a defined
    contribution plan and 19.7 per cent enrolled in "other."

"Keeping the status quo assumes the general public should always finance benefits that many in the private sector cannot share in as employees, nor guarantee as employers. It also presumes future generations will not end such arrangements arbitrarily, and in doing so, risk the pension benefits of present and future civil service employees," Milke said.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of more than 85 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.