|By PR Newswire||
|March 19, 2014 10:00 AM EDT||
TORONTO, March 19, 2014 /CNW/ - While public debate has mainly focused on the "gold-plated" defined benefits of many public-service pension plans, the real problem lies in a flawed approach to managing compensation costs, according to respected pension expert Malcolm Hamilton. In, "Evaluating Public-Sector Pensions: How Much Do They Really Cost?" Hamilton says the problem is government sponsors who typically underestimate the cost of guaranteeing pay-outs in the future, leading to the undervaluation of employee pension costs and the mismanagement of employee compensation.
"The problem is not with the defined-benefit plans per se, it relates to the mispricing of their guarantees, which leads to the over-compensation of employees and badly accounted-for risks to future taxpayers," says Hamilton. "This is particularly true in the federal public sector where plan members are insulated from investment risk, as compared to the provincial public sectors where members frequently bear half of the risk, if not more."
In the first of a two-part series on government employee pensions, Hamilton observes that public-sector pension plans in Canada have many virtues. 'They are generally large, efficient and well managed. However, there are large differences between the fair values of the pensions earned by public-sector employees and the "cost" of these pensions according to public-sector financial statements,' states Hamilton.
These differences arise almost entirely from the pricing of guarantees. Specifically, the financial markets attach high values to the guarantees embedded in public-sector pension plans while government financial statements attach little or no value to these guarantees. This means that pension costs are materially understated and, as a consequence:
- employees in the public sector are paid more than is publicly acknowledged and, in many instances, more than their private-sector counterparts;
- public-sector employees shelter more of their retirement savings from tax than other Canadians are permitted to shelter; and
taxpayers bear much of the investment risk taken by public-sector
pension plans while the reward for risk-taking goes to public employees
as higher compensation.
Hamilton notes that private-sector pension accounting standards long ago rejected the premise at the heart of today's public-sector accounting standards - that the cost of a fully guaranteed pension depends critically upon the rates of return that a pension fund can earn on risky investments even though the pension itself is totally unaffected by these returns.
Public-sector accounting practice books the returns that a pension fund might reasonably expect to earn as a reward for future risk taking long before the risks are taken, and this risk premium is used to reduce the reported cost of employee pensions. As a consequence, in a traditional defined benefit pension plan where pensions are guaranteed and employee contributions are fixed, the reward for future risk-taking goes to employees who, because their pensions are fully guaranteed, take no risk. Future taxpayers, on the other hand, will be expected to bear risk without fair compensation.
"Essentially, we have devised a complicated way to transfer wealth from future taxpayers to current plan members," notes Hamilton.
The good news, he says, is that once the accounting problem is recognized for what it is, the solution becomes obvious. "The risks that taxpayers are being asked to bear without compensation should be transferred, in whole or in part, to the plan members on whose behalf these risks are being taken."
This can be accomplished in a variety of ways, says Hamilton. Benefits can be tied to funding levels and/or to the performance of pension funds. Employee contributions and/or salaries can be tied to the cost of funding their pensions. "Many provincial governments have already started to move in this direction," notes the author.
The C. D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada's trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada's most influential think tank.
SOURCE C.D. Howe Institute
SYS-CON Events announced today that LeaseWeb USA, a cloud Infrastructure-as-a-Service (IaaS) provider, will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. LeaseWeb is one of the world's largest hosting brands. The company helps customers define, develop and deploy IT infrastructure tailored to their exact business needs, by combining various kinds cloud solutions.
Oct. 22, 2016 11:30 PM EDT Reads: 3,793
A completely new computing platform is on the horizon. They’re called Microservers by some, ARM Servers by others, and sometimes even ARM-based Servers. No matter what you call them, Microservers will have a huge impact on the data center and on server computing in general. Although few people are familiar with Microservers today, their impact will be felt very soon. This is a new category of computing platform that is available today and is predicted to have triple-digit growth rates for some ...
Oct. 22, 2016 11:00 PM EDT Reads: 33,932
Effectively SMBs and government programs must address compounded regulatory compliance requirements. The most recent are Controlled Unclassified Information and the EU’s GDPR have Board Level implications. Managing sensitive data protection will likely result in acquisition criteria, demonstration requests and new requirements. Developers, as part of the pre-planning process and the associated supply chain, could benefit from updating their code libraries and design by incorporating changes.
Oct. 22, 2016 10:45 PM EDT Reads: 1,612
November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Penta Security is a leading vendor for data security solutions, including its encryption solution, D’Amo. By using FPE technology, D’Amo allows for the implementation of encryption technology to sensitive data fields without modification to schema in the database environment. With businesses having their data become increasingly more complicated in their mission-critical applications (such as ERP, CRM, HRM), continued ...
Oct. 22, 2016 10:30 PM EDT Reads: 912
SYS-CON Events announced today that Cloudbric, a leading website security provider, will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Cloudbric is an elite full service website protection solution specifically designed for IT novices, entrepreneurs, and small and medium businesses. First launched in 2015, Cloudbric is based on the enterprise level Web Application Firewall by Penta Security Sys...
Oct. 22, 2016 10:30 PM EDT Reads: 1,045
SYS-CON Events announced today that SoftNet Solutions will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. SoftNet Solutions specializes in Enterprise Solutions for Hadoop and Big Data. It offers customers the most open, robust, and value-conscious portfolio of solutions, services, and tools for the shortest route to success with Big Data. The unique differentiator is the ability to architect and ...
Oct. 22, 2016 10:15 PM EDT Reads: 643
Most people haven’t heard the word, “gamification,” even though they probably, and perhaps unwittingly, participate in it every day. Gamification is “the process of adding games or game-like elements to something (as a task) so as to encourage participation.” Further, gamification is about bringing game mechanics – rules, constructs, processes, and methods – into the real world in an effort to engage people. In his session at @ThingsExpo, Robert Endo, owner and engagement manager of Intrepid D...
Oct. 22, 2016 09:30 PM EDT Reads: 9,654
SYS-CON Events announced today that Enzu will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Enzu’s mission is to be the leading provider of enterprise cloud solutions worldwide. Enzu enables online businesses to use its IT infrastructure to their competitive advantage. By offering a suite of proven hosting and management services, Enzu wants companies to focus on the core of their online busine...
Oct. 22, 2016 09:00 PM EDT Reads: 1,255
@DevOpsSummit has been named the ‘Top DevOps Influencer' by iTrend. iTrend processes millions of conversations, tweets, interactions, news articles, press releases, blog posts - and extract meaning form them and analyzes mobile and desktop software platforms used to communicate, various metadata (such as geo location), and automation tools. In overall placement, @DevOpsSummit ranked as the number one ‘DevOps Influencer' followed by @CloudExpo at third, and @MicroservicesE at 24th.
Oct. 22, 2016 09:00 PM EDT Reads: 3,895
WebRTC adoption has generated a wave of creative uses of communications and collaboration through websites, sales apps, customer care and business applications. As WebRTC has become more mainstream it has evolved to use cases beyond the original peer-to-peer case, which has led to a repeating requirement for interoperability with existing infrastructures. In his session at @ThingsExpo, Graham Holt, Executive Vice President of Daitan Group, will cover implementation examples that have enabled ea...
Oct. 22, 2016 09:00 PM EDT Reads: 2,255
SYS-CON Events announced today that Roundee / LinearHub will exhibit at the WebRTC Summit at @ThingsExpo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. LinearHub provides Roundee Service, a smart platform for enterprise video conferencing with enhanced features such as automatic recording and transcription service. Slack users can integrate Roundee to their team via Slack’s App Directory, and '/roundee' command lets your video conference ...
Oct. 22, 2016 08:45 PM EDT Reads: 2,007
Enterprise IT has been in the era of Hybrid Cloud for some time now. But it seems most conversations about Hybrid are focused on integrating AWS, Microsoft Azure, or Google ECM into existing on-premises systems. Where is all the Private Cloud? What do technology providers need to do to make their offerings more compelling? How should enterprise IT executives and buyers define their focus, needs, and roadmap, and communicate that clearly to the providers?
Oct. 22, 2016 08:45 PM EDT Reads: 2,470
In the next forty months – just over three years – businesses will undergo extraordinary changes. The exponential growth of digitization and machine learning will see a step function change in how businesses create value, satisfy customers, and outperform their competition. In the next forty months companies will take the actions that will see them get to the next level of the game called Capitalism. Or they won’t – game over. The winners of today and tomorrow think differently, follow different...
Oct. 22, 2016 08:45 PM EDT Reads: 857
So you think you are a DevOps warrior, huh? Put your money (not really, it’s free) where your metrics are and prove it by taking The Ultimate DevOps Geek Quiz Challenge, sponsored by DevOps Summit. Battle through the set of tough questions created by industry thought leaders to earn your bragging rights and win some cool prizes.
Oct. 22, 2016 08:15 PM EDT Reads: 3,788