Auditor general reports today on civil service pensions

[George Wallace]

Even a complete moron could have seen this coming decades ago when the Government RAIDED the Civil Service, RCMP and DND/CAF Pension Funds to pay down the DEBT and did not return any of those funds.




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Auditor general reports today on civil service pensions, prisons

The Canadian Press Posted: May 06, 2014 12:15 AM ET Last Updated: May 06, 2014 12:15 AM ET


Canada's auditor general is set to report Tuesday on whether the federal government is using the right information to assess the future needs of the country's public service pensions.

Michael Ferguson's nine-chapter spring report, to be tabled in Parliament, will also release a litany of other findings, including whether Correctional Service Canada has enough space for an expected jump in the number of prison inmates.

Ferguson's pension audit focused on the retirement plans for the public service, the Canadian Forces — excluding reservists — and the RCMP, and comes as the Conservative government proposes so-called "target benefit" pension plans for Crown corporations and federally regulated firms.

Some pension experts are pushing the government to use a target-benefit model as part of an overhaul of the defined-benefit plans long enjoyed by federal public servants.

But a statement on the Department of Finance website Monday said the government has already taken steps to ensure that federal public sector pension plans, which fall under their own legislation, are more in line with the private sector.

The C.D. Howe Institute has been arguing since 2009 that Ottawa should adopt accounting rules for public servant pensions identical to those used to determine the viability of private sector plans.

The think-tank has said the rate of return calculations used to evaluate public service pensions means the government may not be putting enough money into the plans now to make them sustainable for the future.

"We examined whether the Treasury Board of Canada Secretariat, the RCMP, National Defence, and the Department of Finance Canada . . . considered the relevant information, analyses and scenarios that could affect the plans' costs and thereby impact their sustainability," says a preamble to the report on the auditor general's website.

Expansion of prisons

Ferguson's report also examines whether the $2.1 billion Canada's correctional service has received since 2009 to expand its existing institutions and to build new ones was enough to meet the expected need.

As well, the report will contain findings on Canada's First Nations policing program, the Canada Revenue Agency's aggressive tax planning program, and whether government departments are following the rules of the integrated relocation program.

It costs taxpayers about $500 million annually to relocate public sector employees, not including the actual moving costs, with the military making up the vast majority of the nearly 20,000 employees who are moved.

The integrated relocation program contract was awarded in 2009 to Brookfield Global Relocation Services after allegations of bid-rigging surfaced in two previous contracts. But it, too, has been criticized as being unfair.

Tuesday's report will also delve into northern economic program spending, the outsourcing of government building management services and the quality of the information that Statistics Canada provides to Canadians.

Of particular note in the chapter on StatsCan will be the National Household Survey, the voluntary — and much-maligned — replacement for the cancelled long-form census.

When the census controversy erupted in 2010, critics derided the government for its decision to do away with the mandatory long-form survey, which was replaced in 2011 with a voluntary questionnaire.

© The Canadian Press, 2014
The Canadian Press

Of course, John and Jane Q Public have short memories and will have forgotten how those Pension Plans were raided by the Government in the past and look at them as another money grab out of their pockets to give Civil Servants, RCMP and Canadian Armed Forces seemingly outrageous pensions......never looking at the truly outrageous pensions Members of Parliament give themselves.  Nor is the fact that the Government has already modified the percentages that Civil Servants, RCMP and Canadian Armed Forces members have to pay towards those pensions been brought forward. 

It would look like the Auditor General has, by omission, tarred the current Pension Plans in a very unfavourable light; not pointing out the true reason why they are in the state that they are in.

 

[Tibbson]

Its often easier to just pick out the problems and not dig down into the root or historic causes.    I also think that John and Jane Q Public know about the outrageous pensions for Members of Parliament but they have given up hoping it will ever change.  I mean, if you were a politician wourld you run for office and then work to slash a major perk, no matter how outrageous that perk was?

 

[PiperDown]

Even a complete moron could have seen this coming decades ago when the Government RAIDED the Civil Service, RCMP and DND/CAF Pension Funds to pay down the DEBT and did not return any of those funds.

George, I am interested in finding out more about what you said above.  I tried a google search and came up empty handed.  Do you have a reference I can look up ?

 

[GAP]

Quote from: George Wallace on Today at 06:54:11

    Even a complete moron could have seen this coming decades ago when the Government RAIDED the Civil Service, RCMP and DND/CAF Pension Funds to pay down the DEBT and did not return any of those funds.

and took 40 billion out of the EI fund into general revenue.....way to go Paul Martin.......

 

[Edward Campbell]

The "root causes" can be found in England, in the 1830s.

England was still, in the early 19th century, a very conservative, class-ridden, undemocratic place. We usually ascribe the main thrust for reform on the Chartists, a largely working class movement, although spearheaded by some intellectuals, that demanded:

[o] votes for all men;
[o] equal electoral districts;
[o] abolition of the requirement that Members of Parliament be property owners;
[o] payment for M.P.s;
[o] annual general elections; and
[o] the secret ballot.

A quick look at the demands will tell you what was wrong with democracy in the 1830s - and, by the way, most of the same things were wrong in America, too. The people were, broadly and generally, "represented," in the House of Commons, by members who were handpicked (and paid) by and did the bidding of the wealthy land owning and, later, factory owning classes.

Pensions for parliamentarians came along later - in the 20th century, after Bismark pioneered retirement pensions in Germany in the 1860s. The aim of parliamentary pensions, as with salaries, was to attract good men and women, often lawyers, businessmen and the like, into parliament. There was, still is, a perceived requirement to offer both good pay and a generous pension because we ask a person to give up the potential high earnings from the most productive years of his or her working lives (40s, 50s and 60s) and work, instead, for us.

I, personally, don't think parliamentary pensions are either gold plated or out of line with what we should expect for parliamentarians.

My problem is not with pensions ...

My problem is with professional, career politicians:

etc, etc, etc ...

We've forgotten that we wanted to elect established, mature, proven people who had already demonstrated their ability to succeed in their own occupation; now we elect people with no discernible resume, no proof of leadership ability or of the where-with-all to look after themselves, much less a community or a country.

 

[dapaterson]

George, I am interested in finding out more about what you said above.  I tried a google search and came up empty handed.  Do you have a reference I can look up ?

The case ended up at the Supreme Court.  See http://www.fsna.com/blog/category/pension-surplus-case/ for much background.

Simplified version: the three main federal pension plans were all in surplus.  The Federal government removed the surplus to pay down debt.  Markets changed, and the accounts now show an actuarial deficit, which is being addressed by increased contribution rates and incremental payments by the Federal Government.


More complex details: Prior to 2001, federal pensions were merely an entry on the ledger of the federal government, as a future liability.  Since then, pension deductions and government contributions have been actively invested in the market.  The Government's action was a simple accounting action.  Removal of the surplus had no immediate impact; benefits are guaranteed by statute, so any shortfall will be made up by the Crown.  Indeed, the Government paid an additional $740M last year into the pension plan to address part of the shortfall.

Today, the three main federal plans (PSSA, CFSA and RCMPSA) each has two sources of funds: the historical ledger account on the Federal books, plus an investment account.  (Note that CFSA part I.1 has only the investment account).  Annual operating costs for the plans are apportioned between the ledger account and the investment account; the cost of operation of the pension plans is paid out of plan assets, not by the public.  There is work ongoing to combine the backend of all three plans in order to reduce cost and ensure a common standard of service.

 

[The Bread Guy]

George, I am interested in finding out more about what you said above.  I tried a google search and came up empty handed.  Do you have a reference I can look up ?

Here's a few links to add to dapaterson's:

• "Public service unions not entitled to $28B pension surplus, says Supreme Court -- The Supreme Court says public service unions are not entitled to a pension surplus that Ottawa withdrew over a decade ago to help reduce the deficit ...." (Toronto Star, 19 Dec 12)
• "Public service unions not entitled to pension surplus: Supreme Court" (Canadian Association of Retired Persons, undated)
• 2012 SCC 71, Professional Institute of the Public Service of Canada v. Canada (Attorney General), 19 Dec 2012

.....way to go Paul Martin.......

... with thanks to the current government for not wanting to give the money back - note no objections from the current government about how The Supremes ruled in THIS case.

The "root causes" can be found in England, in the 1830s ....

I'd say it's way simpler than that:  government X takes money without replacing it, then government Y 1) chooses not to give the money back,  2)  points to how tight a spot public service pensions are (without mentioning they're not giving money back); and 3) dings everyone because the taken money isn't replaced.

 

[Colin Parkinson]

We are already seeing an effect by this talk about pension reductions, we can't attract people with Marine tickets, we don't pay close to market wages and our main attractions, stability and pensions are under attack. Skilled people just aren't interested in working for us and I can't blame them.

 

[PiperDown]

interesting stuff.

I have a colleague who is with the auditor general. Last night we were enjoying a beverage at a local watering hole and the  conversation turned to why the public service pensions are unsustainable.  I wasn't armed with the tools to provide a rebuttal to his office's findings.  Now, I think our next conversation over a beer will be a little more interesting .

 

[Colin Parkinson]

this was from July last year
http://business.financialpost.com/2013/07/02/canada-pension-fund-mercer/

Canadian pension fund solvency continues to improve in June: surveys


http://www.morneaushepell.com/ca-en/insights/strong-improvement-financial-position-pension-plans


Strong improvement in the financial position of pension plans
The financial position of pension plans has improved significantly in 2013 (refer to the monthly tracking).

The good performance of the stock markets, combined with rising interest rates, helped raise solvency ratios for most pension plans by about 20%. In addition, active management was beneficial, since most managers were able to add value relative to their benchmarks in most asset classes.

It should be noted that the impact of stock market returns and movements in interest rates on the evolution of the financial position of pension plans depends on their maturity and their investment policy. However, note that for plans subject to federal legislation, solvency ratios are calculated using an average of 3 years, which means that the impact of year 2013 will be spread over 3 years. In addition, plans that are not subject to solvency rules (such as municipal plans and university plans in Quebec) are more focused on the funding ratio than the solvency ratio. Since the calculation methods of each of these ratios are different, the improvement of the solvency situation has less impact for these plans.

The consequences of the improving financial situation of pension plans are manifold. For example, certain plans that were in deficit now find themselves with a surplus. This implies that special contributions can cease. Some plans that are allowed to select the filing date of their actuarial report may decide to perform an actuarial valuation in advance to reflect their improving financial situation earlier and to reduce their contributions.

The improved financial position also reduces transfer deficits, which could influence the strategy of employers after employee terminations. Indeed, since special contributions will decrease, employers may be tempted to pay immediately their transfer deficits, instead of deferring the payment of their balance up to 5 years.

It may also be relevant for private sector plans to revise their funding policy, considering for example the impact of new regulations on funding relief measures for defined benefit pension plans in Quebec’s private sector, which may apply for actuarial valuations dated after December 30, 2013, and which may serve to extend once again the amortization period of the solvency deficit.

Plans that used letters of credit in recent years could end up not renewing them now, or at least reviewing their utilization. The evolution of the financial situation may result in a whole new ball game for plans that did not use letters of credit until now, especially taking into account the fact that Quebec is expected to eliminate the solvency valuation soon.

In addition, increasing solvency ratios may have an impact on cost-shared plans or on employer-employee negotiations regarding cost sharing. This might also affect situations where it was planned that employee contributions would increase gradually.

Finally, in recent years, some pension plans have adopted a dynamic strategy of risk reduction. This solution’s objective is to gradually immunize the portfolio so that it follows more closely changes in actuarial liabilities. After 2013, several of them are closer to their ultimate goal of risk reduction. They may now be wondering if it might be beneficial to accelerate or decelerate the implementation of this dynamic strategy. Furthermore, having matched a large portion of their assets to their liabilities, they could now focus more on the growth component of their portfolio, using the new tools available to them, such as outcome-oriented solutions, alternative investments, etc. On the other hand, other plans that have been reluctant to implement such strategies, particularly because of historically low interest rates, could now consider the dynamic risk reduction approach or other changes to their investment policy. Indeed, plans must revise their investment policy periodically. For example, some plans that formerly had a large deficit adopted an investment policy that reflected that situation; now that the financial situation has improved greatly, they might consider implementing a different investment strategy, such as a dynamic de-risking strategy or simply a different level of conservatism.

In summary, 2013 was extremely positive for most pension plans. However, the volatility of returns and the scope of variations in assets and liabilities in recent years remind us that risk is always present. It is difficult to say whether the period we have just experienced is truly exceptional or if it will be repeated in the future. We believe that pension plans should review their investment and funding policies, as well as their risk management measures. To this end, we believe that dynamic de-risking is a sensible approach to implement gradually and strategically a long-term vision of pension fund management.

 

[Occam]

Here's the outcome of the Auditor General's report on Public pension plans.  Not a mention of the $30.2 Billion surplus from 15 years ago.  I guess we have a longer memory than the press does.

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Public pension plans at risk over longer life spans, says AG

The auditor general says Canada's public pension plans could pose a significant threat to the government's financial footing because little attention is being paid to looming risks such as the longer life spans of beneficiaries.

In his spring report, Michael Ferguson warned that prolonged low interest rates and lower-than-expected returns on assets could cost taxpayers billions down the road.

He recommended that public pensions should be evaluated periodically and undergo any necessary changes to ensure their sustainability.

"Although we found that the entities we audited have carried out their responsibilities under the law, no one is responsible for carrying out a regular and systematic assessment of whether government of Canada pension plans are sustainable over the long term," Ferguson said Tuesday.

"Pension plans are operating now in an environment where interest rates are low, and plan members are living longer. It is therefore important that public sector pension plans be designed and managed in a way that considers not just present circumstances, but also protects the interests of current and future employees and taxpayers."

The report examined the three main pension plans representing 95 per cent of the government's pension liability: the public service, Canadian Forces and RCMP.

His office projected that the employer's share of the pension benefits expense for these three plans could climb from 1.2 per cent (or $3.3 billion) of total program expenses in 2017 to 1.6 per cent ($13.5 billion) in 2050.

The report warned the financial burden of these plans could deliver a significant blow to the public purse.

Some signs of the financial strain have already begun to surface, the study revealed.

Canadians working less, living longer

The findings say that plans experienced funding deficits totalling $6.5 billion over the last three years. To help close the gap, special payments amounting to $741 million in 2013, and around $1 billion over the last two years, were necessary.

The report also said the plan sponsor did not follow "good practices" in its governance, prompting the auditor general to recommend the pension funds review their approaches to make sure they address current and future conditions.

Looking at the long-term risks, the auditor general said Canadians, on average, are working fewer years, retiring earlier and already living longer than was expected only a few years ago.

Ferguson also said pensions plans were battered in the aftermath of the 2008 financial crisis by strong volatility and the extended period of rock-bottom interest rates.

The findings of the spring report were released as Ottawa promotes a new option for pension plans, one that would allow the federal government to avoid expanding the Canada Pension Plan.

The federal government has touted the voluntary target-benefit plan, also known as a shared-risk plan, as a middle ground between defined-benefit plans and defined-contribution plans. Target-benefit plans could be adopted in Crown corporations, it said.

Last year, the federal government enacted changes to phase in hikes to public-sector employee pension contributions so they equal that of the employer. The adjustments also increased the minimum retirement age for new employees.

A report released last month by the C.D. Howe Institute think-tank, however, concluded that federal workers are still far ahead of their private-sector counterparts when it comes to their pensions benefits.

The paper found that recent changes to public pensions had not gone far enough to even the playing field.

 

[Colin Parkinson]

the unions should hit back with an average breakdown of how much a ex-PS staffers on a pension spend into the local economy. Someone with a decent pension will have some disposable income which in turn gets spent in the very small local shops. Judging by the marketing aimed at current seniors thee is a lot of money at play and seniors that aren't sure they have enough won't be contributing to the local economy. due to poor returns due to interest my dad rarely goes out anymore and spends very little.

 

[Brad Sallows]

The government is on the hook to make up the difference when there are shortages, so the government is entitled to the difference when there are surpluses.  If the surplus had been found to "belong" to the pension holders, any deficit would also "belong" to the pension holders.  People in a DB plan are probably better off without the downside - plans seem to be more often at risk of shortfall than they are of windfall.

The balance issue is only partly related to the viability (solvency) of plans with respect to demographic and economic changes.  A temporary recession or period of slow growth doesn't (shouldn't) mean contributions must increase or benefits must be cut back (particularly since prior surpluses were taken out), but extended life expectancy and changes in the composition of the taxpaying public might require funding/withdrawal changes.

 

[George Wallace]

The government is on the hook to make up the difference when there are shortages, so the government is entitled to the difference when there are surpluses.  If the surplus had been found to "belong" to the pension holders, any deficit would also "belong" to the pension holders.  People in a DB plan are probably better off without the downside - plans seem to be more often at risk of shortfall than they are of windfall.

The balance issue is only partly related to the viability (solvency) of plans with respect to demographic and economic changes.  A temporary recession or period of slow growth doesn't (shouldn't) mean contributions must increase or benefits must be cut back (particularly since prior surpluses were taken out), but extended life expectancy and changes in the composition of the taxpaying public might require funding/withdrawal changes.

I wonder what the Ontario Teachers Pension Fund holders would think if the Ontario Government tried that?

 

[Brad Sallows]

Is OTPP separate from the government of Ontario, or not?  I don't know the details.  Is Ontario only an employer responsible for making employer's contributions, or does it have some duties and powers with respect to shortfalls and surpluses?

 

[Fishbone Jones]

The Ontario liberals tried to take over OPTrust, the OPSEU trust fund. They failed. At least this time. The trust is run by the members representatives. The surplus gets re-invested to make sure there is enough there when people retire. The liberals wanted to take it over and raid the surplus.

I'm not sure which one it is, but one of the teacher's pension funds is huge. They own things like Bell. They also don't pay med benefits to their members when they retire, even though the pension fund is one of the richest in the country. :

 

[Brad Sallows]

OTPP was trying to buy Bell at one point.

Don't let government take over your plan.
Don't let government take over anyone else's plan.