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Time to End the Government Ponzi Schemes


Colin Craig

If you flip open the 2016 annual report for a massive government employee pension plan in Alberta, you’ll find a subtle note that should set off alarm bells for taxpayers and politicians.

Among the potential “risks” outlined by the Local Authorities Pension Plan (LAPP) is a “lack of growth in the public sector.”

That’s an odd admission isn’t it? In the private sector, an investment scheme that depends on a constant growth of new members, in order to make payments promised to existing members, is called a Ponzi scheme. It’s also illegal – just ask Bernie Madoff.

But in government, such schemes are not only legal, they’re very common across Canada.

Each year, various government bodies in Alberta, and their employees, put in billions of dollars into the “defined benefit” Local Authorities Pension Plan. Once an employee retires, he or she is then guaranteed monthly payouts for the rest of his or her life.

The problem of course is that the LAPP has stumbled … and stumbled. The pension plan’s 2014 annual report explains how the “dot-com” bubble caused financial heartache for the pension plan at the end of the 1990s … and then it was the “financial crisis of 2008” that took its toll. These problems contributed to a significant “unfunded liability” for the plan – a financial hole that has to be addressed.

While the rest of us have to watch our RRSPs endure financial bubbles and crises, governments addressed the LAPP’s problems by bailing it out with billions of dollars.

In 2007, Alberta taxpayers had to pay close to $476 million for the LAPP alone. But by 2016, the annual bill for taxpayers had skyrocketed to approximately $1.3 billion; a 179 per cent increase in just 10 years.

Again, we’re not talking about a one-time $1.3-billion expenditure. That figure is the annual cost for Alberta taxpayers for this one pension alone. If you divide that figure by the number of current employees enrolled in the pension plan, it works out to about $8,240 per employee each year.

Governments also raised employee contribution rates. So if you were a new a clerk at the City of Calgary or City of Edmonton back in 2008, your biweekly contributions went up – not only to pay for your own future benefits, but to pay for pension plan members who have already retired. Again, it’s essentially a legal Ponzi scheme.

Defenders of the plan will have all kinds of excuses for leaving the plan alone.

But maintaining the status quo is not only costly, it’s also quite risky. What happens if we see another escalation of costs over the next decade? Are taxpayers supposed to just keep smiling and contribute even more money? That’s hardly fair.

Scrapping the LAPP and other similar golden government employee pension plans will not be easy, but Saskatchewan has shown it can be done. In the 1970s, their provincial government began putting new employees in a far less costly pension plan; known as a defined contribution plan. Thus, over time, many of their pension problems have slowly been addressed.

So the question is – do Alberta politicians have the steel resolve necessary to stand up for taxpayers and tackle this golden entitlement problem? Why not ask your local elected official where they stand on the matter?

Colin Craig is the interim Alberta director for the Canadian Taxpayers Federation.