Task force seeks solutions on $2.1 billion pension burden for Alberta teachers
Edmonton – The provincial government today announced the members of a provincial task force to review options to address the teachers’ portion of the pre-1992 unfunded pension liability.Betty Evans of Calgary has been appointed Chair and Edmonton-Castle Downs MLA Thomas Lukaszuk will represent the government. The Alberta Teachers’ Association (ATA) has been invited to appoint a teacher representative. Terms of Reference will be developed with input from the ATA if its membership is confirmed. The task force will meet soon to develop the work plan and finalize details on the process for consulting with Albertans and interested stakeholders. The task force will then provide recommendations to the government by October 31, 2007.
“I am pleased that the process is now underway to seek ways to reduce the burden current pension contributions place on teachers,” said Education Minister Ron Liepert. “We need to find a solution to this pension issue so that new and current teachers are able to keep more money in their pockets through reduced pension contributions. I hope the ATA decides to be a part of finding a solution which is fiscally responsible and fair to both teachers and Alberta taxpayers.”
The pre-1992 teachers’ unfunded pension liability is currently $6.4 billion. Prior to 1992, the amounts contributed by both sponsors were insufficient to meet future obligations of the pension. In addition, changing demographics, lower-than-expected investment returns, and changes to pension benefits without an increase in contributions to fund them contributed to this liability. In 1992, the government assumed two-thirds of the liability ($4.3 billion) and the teachers’ assumed one-third of the liability. At current rates, the liability will be covered by 2060.
“In accordance with the 1992 agreement, 3.1 % of every Alberta teacher’s salary will be deducted to pay for the pre-1992 pension liability,” added Liepert. “Both the ATA and the Alberta government are concerned that these pension contributions are a disincentive for young Albertans to enter the teaching profession. This is an issue that needs to be addressed so we can recruit and retain our young teachers.”
To address the burden of pension contribution for newer teachers, Budget 2007 included $25 million to offset individual pension contributions for one year according to a pro-rated scale.
Initiating negotiations on options for a reasonable long-term solution to the teachers’ unfunded pension liability issue is one of the initiatives under Premier Stelmach’s priority to build a stronger Alberta. Other priorities are to: govern with integrity and transparency, manage growth pressures, improve Albertans’ quality of life, and provide safe and secure communities.
Backgrounder
Teachers’ Recruitment and Retention Initiative: Task Force on Teachers’ Unfunded Pension Liability
Biographies
Task Force Chair
Elizabeth (Betty) A. Evans
Elizabeth (Betty) A. Evans is an accomplished former educator, academic and volunteer, with over 25 years of service to Alberta’s K-12 and post-secondary education systems. The recipient of a Master of Education Degree from the University of Calgary, Ms. Evans has served in numerous education leadership roles, including the Principal of Richmond Elementary School in Calgary. Prior to that, she served as Assistant Principal at Connaught Elementary and W.O. Mitchell Elementary schools, in addition to Vice Principal of University Elementary School. Ms. Evans’ volunteer and committee resume is equally impressive. Currently, she is the Vice Chair of the City of Calgary’s Advisory Committee on Accessibility; Chair of the Access Design Committee; and a member of the South Lundbreck Water Coop. She also served as the Chair of the Calgary Board of Education’s Strategic Planning Committee: Society and Culture, and as Chair of the University of Calgary Senate Honorary Degrees Committee. In addition to her master’s degree, Ms. Evans’ education training includes Linguistic Research and Studies (University of Calgary) and Resource Teacher Training (Calgary Board of Education).
Task Force Representative - Government
Thomas Lukaszuk, MLA
Edmonton-Castle Downs
Thomas Lukaszuk was elected to his first term as Member of the Legislative Assembly of Alberta for the constituency of Edmonton-Castle Downs on March 12, 2001. Mr. Lukaszuk was re-elected to his second term as a Member of the Legislative Assembly for Edmonton-Castle Downs on November 22, 2004. He has been appointed to serve on the industry-led Strategic Tourism Marketing Council, is a member of the Edmonton Salutes Steering Committee, co-chair of the Consular Corps and sits on numerous government committees. Mr. Lukaszuk graduated with a bachelor’s degree in education from the University of Alberta and taught in Edmonton schools before starting Injured Workers’ Advocates Inc. (IWA), a firm designed to assist injured workers with work-related injury claims. Mr. Lukaszuk has a history of involvement with community groups and has been decorated with the Queen’s Golden Jubilee Medal for his community service and the Alberta Centennial Medal for his contributions to the province.
Task Force Representative – Teacher representative
A request has been extended to the Alberta Teachers’ Association to appoint a representative to the task force.
Backgrounder
Teachers' Recruitment and Retention Initiative: Task Force on Teachers' Unfunded Pension Liability
Fact Sheet
The Task Force
The task force will conduct primarily technical and fiscal analysis of the options and consult experts where required as it considers the options for addressing the pre-1992 unfunded pension liability issue. The task force will ensure that interested Albertans have a chance for input, through written submissions or invited verbal submissions.
The task force work must result in recommendations to the Minister of Education which:
• strike a balance between the interests of both Alberta teachers and Alberta taxpayers,
• reflect prudent fiscal management and an appropriate sharing of responsibilities for the risks and benefits to any change in arrangements for the teachers' share of the pre-1992 unfunded pension liability,
• promote the recruitment and retention of teachers in Alberta ,
• are specific and lie within the mandates of the Government of Alberta, and
• promote a positive education climate in Alberta among teachers, locally elected school boards, and the Government of Alberta.
The recommendations from the task force are to be submitted to the Minister by October 31, 2007.
Budget 2007
Budget 2007 included $25 million to address the issue of teachers' contributions for the pre-1992 unfunded pension liability. The government is willing to assume, for a one-year period beginning September 1, 2007 , the payments of teachers toward their unfunded pension liability on a pro-rated basis. The government's contribution will be on a sliding scale that reflects individual teachers' years of experience:
- 100% of the annual contributions for teachers with up to 5 years of experience
- 75% of the annual contributions for teachers with 6-10 years of experience
- 50% of the annual contributions for teachers with 11-15 years of experience
- 25% of the annual contributions for teachers with 16-20 years of experience.
This pro-rated approach reflects the fact that our newest teachers have the least responsibility for the pre-1992 liability. At the same time, most teachers receive an immediate financial benefit regardless of years of service.
Background
The Teachers' Pension Plan has two sponsors: the provincial government and active teachers. Prior to 1992, the amounts contributed by both sponsors were insufficient to meet future obligations. In addition, c hanging demographics, lower-than-expected investment returns, and changes to pension benefits without an increase in contributions to fund them contributed to this liability. Many public pension plans were similarly under-funded.
In 1992, the two sponsors agreed to a new funding structure via the Teachers' Pension Plan Act which established a plan to eliminate the unfunded liability by 2060. The Government of Alberta assumed responsibility for two-thirds of the liability (now $4.3 billion), while teachers assumed responsibility for one-third (now $2.1 billion). The total liability is $6.4 billion.
This fiscal year, the Government will contribute over $357 million to the teachers' pension plan. This includes $200 million, or 8.39% of teachers' salaries, for current service pension payments plus an additional $157 million, or 6.38% of salary, for the unfunded pension liability.
Teachers currently contribute 11.96% of their salary into the Teachers' Pension Plan, including 8.73% related to current service and 3.23% for pre-1992 unfunded teachers' pension liability.
Despite these investments, the plan is only 32% funded, meaning that the present value of the total assets of the plan on hand today (cash, expected investment returns, etc.) amount to only 32% of the liabilities of the plan (commitments for pension benefits).
The Challenge
At present contribution rates, the liability will grow under the current funding formula to about $14 billion by 2044 and will not be eliminated until 2060.
Due to the changing demographics of the current teacher population, 60 % of Alberta teachers have only post-1992 service. This means an increasingly larger percentage of active teachers are paying for a liability that existed before they started their careers. In addition, a significant percentage of current teachers are nearing retirement age which means an increasing burden for the old liability is placed on future generations of teachers.
Concerns have been expressed that the current salary deduction of 3.23% for the unfunded liability is becoming a disincentive for young Albertans to enter the teaching profession. A new teacher earning $45,000 contributes about $4,800 per year to the plan. Of this, over $1,300 per year is paid towards the unfunded liability.
The government acknowledges that pension contributions may be an obstacle in the recruitment and retention of the best and brightest teachers to our classrooms.
