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Letter: Federal public service pension plan is doing fine

The argument has often been put forth by business associations, banks and others that the federal public service defined pension plan is unsustainable.

We have frequently heard comments from the Sr. John’s Board of Trade, the Newfoundland and Labrador Employers’ Council and others advancing this very argument. I find it odd that they brazenly put forward these arguments despite the shameful record of private business in protecting workers’ hard-earned pensions. We see the plight of workers at Sears, Wabush Mines and others who have been left high and dry without pensions, health-care benefits and severance. Yes, private plans indeed — great for business, not so much for workers.

I recently came across an excellent article by Patrick Imbeau, a pensions policy expert with the National Association of Federal Retirees that destroys the myths perpetuated by these groups. Unlike their rhetoric, this article sticks with the facts and reaches the conclusion that the financial sustainability of public sector pension plans is not the issue, but rather it is more about political sustainability and cynically using the plan as nothing more than a punching bag to advance the bigger profits agenda for banks and corporations.

In the interest of informing people, here are some of the facts Imbeau makes:

  • The public service pension plan has two distinct funds: the fund for pre-2000 service and the fund for post-2000 service. In the 1990s, the plan had a surplus (credits exceeded estimated cost of providing benefits). The government adopted the practice of amortizing the surplus (gradually using it over several years to reduce the overall federal deficit), effectively reducing its pension liabilities. By 1999-2000, the total surplus would reach $30.9 billion.
  • In 1999, with the passing of Bill C-78, the determination of contributions rates was taken out of legislation and handed to the Treasury Board. It would determine both employee and employer contribution rates based on actuarial valuations for each plan. Also, the benefits that were payable with respect to service before April 1, 2000, continued to be paid from the Consolidated Revenue Fund (CRF) and charged to the Superannuation Account. But for other pension amounts earned going forward, an arm’s-length organization named PSP Investments was created to invest funds for the pension plans of the public service, the Canadian Armed Forces, the RCMP and the Reserve Force.
  • PSP Investments is now one of Canada’s largest pension investment managers. The plan consistently posts investment gains that exceed expectations. However, in 2014, even though the PSP was in a surplus position, an actuarial process called “smoothing” was applied, and the plan was therefore deemed to be in a deficit position of $3.6 billion. Former chief actuary Bernard Dussault believes using asset smoothing in this case was inappropriate. He says actuarial valuations already have to rely on a number of economic and demographic assumptions, and in the midst of this, asset smoothing takes a value we don’t have to project, and reshapes it into a projection. It favours fiction over reality.
  • So, who pays for federal public sector pensions? Members of the public service who retired before 2000 would continue to be paid through the CRF. But if they retired after 2000, a portion of their pension would be paid from the revenues made up of contributions from employees and employer, and the investment returns of PSP Investments.
  • Were it not for the inappropriate application of asset smoothing in 2014, the plan would have been in a surplus position and PSP Investments continues to provide investment gains year after year. PSP Investments recently announced annual results for the year ending March 31, 2017. Its portfolio return was 12.8 per cent net of all costs. PSP Investments had $135.6 billion of net assets under management at fiscal year end and expects to manage $200 billion by 2025.
  • The plan is sustainable from a financial standpoint.

Thank you for allowing space in your paper to help clarify what I would suggest are the myths of sustainability around the federal public service pension plan.

 

Paul Green

St. John’s

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