Feds should cut costs by targeting employee compensation, moving away from defined-benefit pension plans: Think tank

A new study by the C.D. Howe institute suggests that federal government spending is out of control and ought to be contained by targeting “soaring” employee pay and benefits.

The report, “Premium Compensation: The Ballooning Cost of Federal Government Employees,” by Alexandre Laurin and William B.P. Robson argue the feds should target three areas to get expenses on a more sustainable track.

The authors suggest that when all benefits are taken into account, the average payroll compensation in the federal government is $64, far more than those in professional, scientific and technical service jobs ($40 per hour) and finance and insurance positions ($46 per hour).

The report makes three recommendations:

1. The federal government should recognize the full value of its employees’ deferred benefits using actual, not invented, discount rates, and include the annual changes in that value in its statement of operations.
2. The government should ensure that the total value of its compensation is competitive with the outside alternatives its employees face, understanding that the “right” level of compensation is one in which some departures do occur. In doing so, prolonged periods of departmental operating budget freezes, as occurred in the early 2010s, is one of the most likely methods to succeed with the least possible disruptions of essential public services.
3. Finally, in managing total compensation costs, it should transition away from the pure defined-benefit pension model. In this regard, target-benefit plans are an attractive option because they allow more benefit flexibility for the sake of more stability in contribution rates.

“The federal government is paying more than necessary to attract and retain good workers,” the authors write. “Containing federal borrowing and avoiding future upward pressure to raise taxes will require Ottawa to curb the cost of its own employees.”

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