Public Accounts Committee on Dec. 14th, 2011

[The Chair, NDP, David Christopherson]

I now declare this 22nd meeting of the Standing Committee on Public Accounts open for business and in order.

Welcome to our guests. I would ask you to introduce yourselves to the committee and begin any opening remarks you may have.

[Robert Fonberg, Deputy Minister, Department of National Defence]

Thank you, Mr. Chairman.

Good afternoon, committee members.

Thank you very much for this opportunity to discuss chapter 3 of the spring 2011 report of the Auditor General pertaining to the reserve force pension plan.

I'll introduce my colleagues. With me today are Vice-Admiral Bruce Donaldson, the vice-chief of defence staff; Rear-Admiral Andrew Smith, the chief of military personnel; Kevin Lindsey, the chief financial officer; and Mr. Dave Grandmaison, the director of Canadian Forces Pensions Services and of the military pension renewal project.

As vice-chief of the defence staff, Vice-Admiral Donaldson offers a unique perspective on the reserves themselves.

He will make a short speech and will provide important information on the history and the implementation of the reserve force pension plan.

[Vice-Admiral Bruce Donaldson, Vice-Chief of the Defence Staff, Department of National Defence]

Mr. Chairman, if I may.

[The Chair, NDP, David Christopherson]

Yes.

[VAdm Bruce Donaldson]

Thank you, Mr. Chairman.

Reservists are indeed a vital part of our Canadian Forces, significantly contributing to Canada's success in military operations. Over the decades and during the recent years of high operational tempo, our reservists have volunteered to serve either on active operations at home or abroad, or by backfilling important support roles. In fact, at one point at the height of our operations back in February of 2010, 15,000 of our 27,000 primary reserve members were on full-time service. Individuals from across the country answered the call to duty in a time of need and voluntarily took leaves of absence from their regular jobs or education programs to serve full time with the Canadian forces. They've been instrumental in keeping our military operational and successful, and I think all Canadians owe them a tremendous debt of gratitude.

Mr. Chairman, the reserve force pension plan is designed to provide members of the reserve force with a modern pension plan that matches their level of service and provides them benefits comparable to those of their regular force counterparts.

It is also aimed at ensuring that the Canadian Forces retain reservists and are able to continue attracting talented men and women.

The Government of Canada began work on this plan in the late 1990s, in response to demands from reservists, parliamentarians and Canadians. It was an extremely complex undertaking, requiring a substantial amount of work to plan and implement.

In fact, when the department introduced the reserve force pension plan in March 2007, it was the first new pension plan to be introduced in the federal public sector in more than 40 years.

We knew we would have our challenges. The unique nature of a reserve service means that no two individual cases are alike. Therefore, developing a generic system that would account for every possible scenario was close to impossible. Furthermore, some of the members' records dated back from the 1960s, when these had existed only in paper format, if at all, thus requiring a substantial amount of time to extract and consult.

While the department was aware of some risks associated with these challenges, we decided that these were not sufficient to delay the introduction of benefits to reservists, as the risk mitigation would have resulted in further delays to the plan's implementation. We therefore proceeded to introduce the reserve force pension plan in March 2007.

As a result, we learned many lessons from the implementation that reshaped our approach and have permitted us to identify ways in which the program could be improved to quickly apply lessons learned and start making adjustments for increased program efficiency. I'm not sure that we could have predicted these lessons by delaying the implementation to study it further.

Mr. Chairman, many of the issues raised by the Auditor General's spring 2011 report were similar to some of our own observations made after the implementation of the plan. We therefore agreed with the findings and recommendations of chapter 3 of the report. In fact, the department has been working to address the issues for several years.

Since the publication of the Auditor General's report, we've made significant progress on the management action plan. We've hired and trained additional staff to address backlogs, growing the team from 132 in March 2007 to more than 230 employees today. We continue to assess whether another spiral of growth, with its associated spike in plan administration costs, would significantly improve the situation. We've improved internal controls, adding additional document checks to prevent errors. We've addressed systems issues, improving the way the applications are processed.

With these improvements, we have doubled our capacity to process files every year since 2007.

We also recognize the importance of open and clear communications with reservists. To improve this, we will have an interim website solution in place by March 2012, with the final website available by next December.

In addition, the military pension renewal project, which is currently at the approval stage, will review the overall business process and administrative systems of the plan.

As already noted, this has been a complex and challenging undertaking, but I believe we have established significant momentum, and we're continuing to build on this momentum. We recognize there is still much work to be done, but at the same time we'll continue to look for ways to improve the effectiveness and efficiency of the RFPP's implementation in the months and years to come.

Today my colleagues and I welcome this opportunity to address any questions you might have.

Thank you very much.

[The Chair, NDP, David Christopherson]

Thank you, Vice-Admiral.

My apologies, colleagues. I should have gone with the Assistant Auditor General first, which is our normal practice. It is my mistake.

Mr. Berthelette, you have the floor, sir.

[Jerome Berthelette, Assistant Auditor General, Office of the Auditor General of Canada]

Thank you, Mr. Chair. There is really no need to apologize.

Mr. Chair, thank you for the opportunity to meet with your committee today to discuss chapter 3 of the Auditor General's spring 2011 report about the reserve force pension plan at National Defence.

With me today is Tom Wileman, principal.

Reservists play an important role in the Canadian Forces. While most serve part time, some volunteer for full-time service and have been deployed to overseas operations.

In November 2008, we audited the financial statements of the reserve force pension plan. For the 2007-08 and 2008-09 fiscal years, the audit resulted in a denial of opinion, because there was not sufficient information to determine the reliability of the financial statements. It is rare that we are unable to express any opinion on whether financial statements fairly reflect the financial position of a federal program. Therefore, we decided to conduct a performance audit to find out why this occurred.

Establishing a new federal pension plan is a rare and specialized undertaking. National Defence designed the plan to include all reservists, subject to eligibility requirements, and to allow pension buybacks for an unlimited period of past service. As of March 2010, approximately 21,000 contributors were in the plan.

As outlined in exhibit 3.1 of our chapter, the establishment of a pension plan for reservists has a long history. The need for a pension can be traced to the late 1980s when National Defence determined that such a plan could help with the recruitment and retention of reservists. In September 1999 Parliament authorized the establishment of a pension plan for the reserve force. In March 2007 the reserve force pension plan came into force. We examined the approach the department had followed to plan and implement a separate pension plan for reservists.

We found that National Defence did not have adequate planning in place. No senior official was made responsible for coordinating both the policy development and the delivery of the reserve force pension plan.

As a result, pension services were prone to delays and errors in the first three years of operations.

Consequently, there is a serious backlog in processing pension buybacks. National Defence statistics show that 4% of 9,213 buybacks requested by March 31, 2010, have been processed. Many reservists could wait seven years or more from the 2007 start date to know what pension benefit to expect and what it will cost them. There will still be a backlog in March 2012.

We recommended that National Defence adopt comprehensive measures to improve the management of the reserve force pension plan. The work on this audit was completed in November 2010, and we have not reviewed actions taken by the department since then.

The committee may wish to ask National Defence about its progress in improving pension services for reservists. The committee may also wish to ask the department what the current backlog is, when they plan to eliminate the backlog, and when they will be in a position to provide a set of reserve force pension plan financial statements that can be audited.

Mr. Chairman, this concludes our opening statement. We would be pleased to answer any questions that the committee may have.

Thank you.

[The Chair, NDP, David Christopherson]

Thank you very much, Mr. Berthelette.

We'll move now to our questions and rotation, beginning with Mr. Saxton. You have the floor, sir.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

Thanks to our witnesses for being here today to discuss the reserve force pension plan. I don't think anybody would dispute that value is critical in any pension plan. The reserve force pension plan has many features that make it a valuable part of planning for members' financial futures. Some of these features include early retirement, indexing, bridge benefits, and generous benefits for survivors.

My first question is for the Office of the Auditor General. In the Auditor General's spring 2011 report, the Auditor General mentioned that there was a serious backlog in processing pension buybacks of past service. Could a reason for the backlog be attributed to the fact that, prior to the reserve force pension plan, there had been no new pension plans introduced within the public service for the past 40 years?

[Jerome Berthelette]

Mr. Chairman, certainly the introduction of a new pension plan requires a great deal of work. It's a complex undertaking, and if one hasn't done it before then, yes, it is going to be more difficult to do.

However, what we found was that the reserve force pension plan was introduced without coordinating regulation and policy development with the coming into force of the plan's operation. It was not identified as a stand-alone project. As I mentioned in the opening statement, no senior official was made responsible for it at the project level. As well, there was no master implementation plan that coordinated the development of the policies and regulations with regard to the delivery of the reserve force pension plan.

I think this contributed more to the situation we faced than the fact that there had not been a new pension for a number of years.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

If the Department of National Defence waited until it had a 100% foolproof plan in place to prevent complications, would there even be a reserve force pension plan in place right now?

[Jerome Berthelette]

Mr. Chair, I would like to note for the committee that at no point in our audit do we suggest that the department should have waited to introduce the reserve force pension plan. The observation we have with respect to planning is that from our perspective, from what we saw when we reviewed the files, it seemed to us that the planning for the implementation of the plan could have started a lot earlier and could have been coordinated with the development of the policies and the regulations.

[Andrew Saxton, Conservative, North Vancouver, BC]

Your report indicates that there have been a significant number of members of the reserve forces—approximately 11,000, in fact—buying back their pensions. Your report also states that there are few records dating back over four years, many of which are incomplete or non-existent.

Do you know how many hours it takes to process a file, especially a file that is only partially complete?

[Jerome Berthelette]

Mr. Chairman, the information we have is that it takes between 80 and 100 hours to process these buybacks, in part due to the issue with respect to the records, which prior to 1999 were in hard copy, and which are very hard to retrieve or may not exist, resulting in the fact that National Defence has to use other records in order to make the determination.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Can you confirm the steps the department had to take to review and confirm past service?

[Jerome Berthelette]

Mr. Chair, maybe I could ask our colleagues from the department to answer that specific question.

[The Chair, NDP, David Christopherson]

Please, whichever one of you wants to answer.

[Dave Grandmaison, Director, Canadian Forces Pensions Services, Department of National Defence]

I think that's me, Mr. Chair.

As mentioned, pre-1999, there are no electronic records. In a lot of cases there are actually no paper records that exist. To verify the validation of records, members would send in their pay records and we would gather archived pay slips. Back then they actually called them pay cards as well.

If they couldn't find those, we'd accept course attendance records. A lot of members had to go to CFB Borden for six-month courses, and that type of thing. Therefore, we could prove they were a second lieutenant from 1962 to 1963 and so on. As a fail-safe measure, if they were confident they had military service, we would accept a T4 from the CRA to fill in the missing gaps. The problem with a T4 is that it doesn't say at what rank and how many hours you served. It simply says how much you earned. From that, we can work backwards. If they were a second lieutenant and thought they had worked six months, we could figure out how many hours they did work.

It is up to my staff to assist the member and verify that all their records are there. They sign off that, yes, it is complete, and then from there we process the files.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay.

Finally, you mentioned that adequate pay records did not exist prior to 1999. Has there been an improvement in the way the records have been kept since then?

[Dave Grandmaison]

Mr. Chair, since 1999 all records have been electronic. They are audited annually by the OAG in its National Defence audit. So everything has been in line from the date the plan went forward. Most of the difficulties were encountered because the reservists could buy backwards. The electronic records did not exist, and that's where most of the delay is, sir.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

[The Chair, NDP, David Christopherson]

Moving on to Madame Blanchette-Lamothe, you have the floor, Madame.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you.

First, I would like to congratulate our guests for taking on the implementation of a reserve force pension plan, which posed a number of challenges. I am pleased to hear today that you are interested in taking on the challenge of improving this regime.

I would like to better understand the challenges that lie ahead. The report says that a number of responsibilities were shared, but that there was no senior official responsible for managing the project.

I would like to know whether there is currently someone responsible for managing this project as a whole.

[Rear-Admiral Andrew Smith, Chief Military Personnel, Department of National Defence]

As Chief Military Personnel, it falls on me to manage this, in terms of both policy and administration. That was not the case before, but since the summer of 2011, I am responsible for both aspects of the program.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

So, you are the one who will coordinate implementing and improving the plan?