Guest Post: A Convenient Untruth About Public Pensions?

Submitted by Leo Kolivakis, publisher of Pension Pulse.

Jack Dean of PensionWatch sent me this article by Larry Brown of NUPGE, A convenient untruth about public pension plans:

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  1. "DoctoRx"


    As a retired MD, I appreciate your focus on a (non-needy) group of professionals who tend to be poor investors. I wonder, however, how the average NC reader feels upon reading that a physician has fallen into a depression on "only" having a $2.2 M net worth- and presumably a high income, assuming he/she is not so disabled by depression as to be unable to work.

    It would seem that that doctor could work part-time, draw down the nest egg gradually, and live just fine.

  2. Leo Kolivakis


    I come from a family of physicians and most of my close friends are physicians. I think doctors are great at being doctors but they are lousy investors, especially the older generation.

    But you are absolutely right. Doctors are lucky in one sense that there is a shortage here in Canada and they have the option to delay their retirement until they feel comfortable financially again.

    For most other self-employed workers, this is not an option. This is why I believe that we need to address the retirement issue for all self-employed workers and all private sector workers. Unlike public sector workers, they cannot retire knowing they will get a percentage of their best years salary.

    Of course, the way things are going, I think that many public sector workers are going to get a rude awakening and see that their cherished pensions are about to get sliced.



  3. RTD

    "More than half of the workers who get pensions outside the public sector do not pay directly for them at all – the employer pays the full cost."

    That's misleading because most private sector workers don't receive pensions at all, they are on defined contribution plans (e.g., 401k).

  4. Brent Buckner

    You wrote:
    The real fact in Canada is that taxpayers subsidize every pension plan – all of the private sector plans for sure. This is because private sector employers can deduct the cost of private pension plans from their taxes – a clear case of the taxpayer subsidizing the cost of private plans.

    Do private sector employers deduct the cost of private pension plans from their taxes, or do they deduct it from the income upon which their taxes are based?

    I had thought it was the latter.

  5. Brent Buckner

    You wrote:
    These programs allow for increased tax deductions to the corporation as well as the ability to increase retirement funds as a perk – growing in a tax-free environment.

    I do not think that RCAs compound tax-free. As I understand it (this is not tax advice), RCAs annually submit a Part XI.3 tax return, on which they pay a 50% tax rate on positive investment returns (such taxes potentially refundable in future against investment losses or at time of retirement based upon prevailing tax rates).

    c.f. on RCAs

  6. Brent Buckner

    I see that both sections I quoted were within block quotes.

    I apologize; I should have written "you quoted" rather than "you wrote".

  7. DownSouth

    I'm trying to piece together from this just what it is the doctors are hoping to gain. From reading this post, it is not completely clear. Is this an accurate assesment of the current situation?

    ► Features of public employee benefit plans:

    1) Defined benefit, benefit implicitly (but not explicitly) guaranteed by government
    2) Employer (government) funds 35% of plan
    3) Employee funds 65% of plan which is tax deductible
    4) Funds grow tax-free
    5) Participate in large pool thus spreading risk
    6) Pool managed by "professional" money managers who ostensibly do a better job managing the money than a busy doctor can do

    ► Features of RRSP plan in which doctors (and all self-employed) currently participate:

    1) No defined benefit. This is a private savings plan similar to U.S. 401(k) or IRA
    2) Doctor funds 100% of plan which is tax deductible
    3) Funds grow tax-free
    4) No Participation in large pool thus spreading risk
    5) Funds not managed by "professional" money managers who ostensibly do a better job managing the money than a busy doctor can do

    So exactly what is it that the doctors hope to gain:

    1) A defined benefit, implicitly guranteed by the government (so as to be insulated from the vagaries of the market)?
    2) The 35% contributed by the government?
    3) To participate in a large pool so as to spread risk?
    4) To participate in a pool managed by "professional" money managers who ostensibly do a better job managing the money than a busy doctor can do

    Leo, doesn't this signal a rejection by doctors of the "ownership society" that has been peddled so aggressively to Americans for the last 25 years by right-wing think tanks like the American Enterprise Institute and Heritage Foundation?

    And if doctors, who have to be some of the most intelligent individuals in the society, deem themselves unable to navigate this financial mine field, where does that leave the rest of us dummies?

  8. "DoctoRx"

    DownSouth 10:39:

    Medical doctors, on average, really are much poorer managers of their own money than their IQ and incomes would suggest.

    On the broader subject of pensions, the future/future wealth and economy is unknowable; making promises of any particular return in retirementis fraught w risk and IMO should be done VERY conservatively: direct Govt obligations (or Govt-insured) only, perhaps.

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