Doing the Math

The Near North District School Board is having a small problem meeting one of its debts. Chairwoman, Eunice Saari, says (the Nugget) that they have to borrow a $100,000 a year to pay former employees who moved to the Separate School Board back in 1985. A costly legal battle between the Boards over the approximately 1 million dollars now due has forced the Near North Board to appeal to the government for relief. The original debt was only $250,000.

Any wonder why we have problems affording text books? A hundred thousand would have bought quite a few books – something teachers and students have been without because somebody did not do their math homework. This blunder was perpetrated by the very people who manage the learning process in our society.

Yes, too bad somebody did not do the math back in the good old days. Or was that about the time we dropped the emphasis on reading, writing and arithmetic? Perhaps it was during the time when money was flowing freely in all government offices and nobody gave a thought to the future costs. Or perhaps it was a decision by a Board that had no accountability for the public purse. Sadly, there are a large number of companies who are facing the same dilemma – the costs to maintain benefits to former employees.

Sudbury Hydro is now in tough negotiations with its union over this same problem. They simply cannot, in good conscience, afford to continue to pay benefits to people who are no longer working for them. North Bay Hydro went through an unpleasant strike over the same issue two years ago. Some very large corporations have made and are making the same mistake today. They are in deep trouble with their unfunded liabilities.

We do not know how many employees are involved in the School Board issue, but using North Bay Hydro as an example, it currently costs about $4,000 a year per employee to pay for benefits to retired people. If you have one of those little Interest Calculation books that charts Present Values and Annuities you can easily figure what the future costs will be. Health and insurance costs are increasing at the rate of about 7% per year, calculate that the average employee will draw on these benefits for 20 years, and you have the answer. One other thing – if your group has a retiree sector, your total rate will be higher because you are carrying people with higher risk (age).

There is little point in asking who agreed to these post retirement benefits, the issue is who is going to pay for them now. The School Board (and Hydro companies) can apply to the Provincial government for relief but it is still you and I who will pay. If your auto insurance company, for instance, pays these benefits to former employees, then you can be assured you will be picking up their tab too. Perhaps it is just the cost of staying alive, but it seems a tad unfair that we who do not enjoy these paid health benefits must pay, not only for our own, but pay for those with these retirement plans, either through our taxes or increased service fees.

The real issue goes back to our health care system. Employees and their unions were certain that their health coverage would be very costly in their post-retirement years and wanted some assurance that they would be able to afford coverage. Had the health system in the country guaranteed this, there would be no need for these post-retirement packages.

The government does offer some relief in picking up most of the costs for designated drugs and paying for ward coverage in hospitals. They will even help with the cost of your final days in a nursing home if you can not afford the full price. But in the years when the bones, teeth, eyes and ears fail, you are on the hook for your repairs and maintenance. If you have been fortunate enough to have had a reasonably good job and have put away a few shekels, you can survive.

But if you are in the group who buys everything on credit, barely keeps up with daily costs, does not have a pension plan or RRSP, you could be in for some very uncomfortable years in later life. That is what happened to those companies who are facing those huge unfunded liabilities for future benefits – they ‘bought’ these plans on credit.

You should be doing your math now, not like the School Boards who are hoping for a government bailout. One can only hope that the Boards of companies, both private and public, do the math before they agree to extend benefits to employees beyond their working years. The rest of us cannot afford it.