Response to The Ottawa Citizen August 10 Article

August 19, 2014

The Ottawa Citizen recently published an article titled Call for federal pension policy baffles experts. The Canadian Association of Professional Employees, because of its multiple interventions in the area of pensions, feels that it has to counter some of the statements contained in this article.

The first sentence, where it is affirmed that ‘… the pension plans of Canada’s public servants, military and RCMP … have no real funds and own no assets’ is very misleading, to say the least. How can one say that these plans have no real funds and own no assets when we just received the most recent report of the Public Sector Pension Investment Board created in 2000? Reading the PSPIB report, we learn that the Board is managing assets of $93.7 billion (as at March 31st, 2014) and that the Board has obtained a total return of 16.3 %.

There is a misunderstanding here and some of it can be explained because the legislation was changed in 2000 when a new Public Service Pension Fund was created. At the same time, actuarial calculations were done and the government decided that the plan was in surplus by $30 billion, so the value of the plan in the books was written down by the same amount. Of course, unions representing the participants to the plan took the employer to court for misappropriating the surplus but, unfortunately they lost. Therefore, the employer could take any surplus.

However, it is not because the money was never invested that participants never paid their fair contribution to the plan. If one looks at the history of the Public Service Pension Plan posted on Treasury Board’s website, it becomes quite clear that starting from the creation of the plan in 1870, contributions were adjusted to be kept aligned on the value of benefits promised to future retirees.

Eventually, someone must have explained to the government of the day that investing contributions was a good thing and it became a reality on April 1st, 2000. It is sound then to affirm that from 2000, the plans are funded and, based on reports from the PSPIB, that the plans are in good financial health. Also, contribution rates kept being adjusted up to 2012 when the government decided unilaterally to force upon employees an increase of the order of 25% by changing the ratio of employer/employee contributions to 50/50, from 60/40.

However, some people would prefer the Public Service, the military and the RCMP pension plans to fail and be replaced by something else. Despite all those changes, despite excellent returns on investments.

CAPE as well as others have explained in much detail why ‘fair-value’ accounting is inappropriate when applied to pension plans. It is perplexing to read that the C.D. Howe Institute has not learned from its past mistakes.  (See  CAPE Pension Update – 2014 / CAPE’s Analysis of the C.D. Howe report)

As for Mr. Lee’s comments on ‘modernizing’ pay, benefits and pension, he should not confuse modernizing with going back to pre-1870 conditions.