Public Accounts Committee on May 28th, 2014

[The Chair, NDP, David Christopherson]

That's very good. Thank you very much. I appreciate that.

We'll go back to Monsieur Giguère and then Mr. Albas.

You have the floor, monsieur.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

The last time I spoke I was not able to get an answer from the Auditor General on this issue. My question was on subsection 1.42, concerning certain assumptions prepared and considered by the secretariat.

Could you please give us more information on this subject? It is clear that they work on the assumption of a defined-contribution plan.

[Nancy Cheng]

Thank you, Mr. Chair.

Paragraph 142 referred to the situation where we asked the secretariat to share with us whether they had done certain analyses relating to sustainability.

As Mr. Watson pointed out, there was due diligence on their part to decide what they were and weren't able to share with us.

There were no specific analyses that helped us understand how they might have looked at different hybrid plans and things alike. I think they mentioned that some analyses were done, but we weren't able to see evidence of that. Audits are evidence-based, and without the evidence we could not conclude they had done so.

This was something Treasury Board explained to us that they have undertaken, without forwarding sufficient evidence for us to support that.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

There is a essential question here.

You say that these pension plans and their evaluation must be constantly monitored. However, if we cannot verify whether or not there are alternate assumptions, it is a little bit difficult to evaluate the long term sustainability of these plans and the quality of the analyses that have been done.

I am specifically referring to what is done by the central banks of certain foreign countries. Several governments have repurchased the actuarial debt associated with their pension plans, capitalized it and excluded it from interest-bearing debt. Has this kind of analysis and monitoring been done in Canada?

Perhaps Mr. Watson would be able to answer this question.

[Daniel Watson]

If we are talking about the way that we evaluate our risks and the actuarial impact on the funds, I would say that this work is done by the Chief Actuary. He works closely with us over each three-year valuation period.

As for the question on the period before 2000, when we did not have a fund as we did for the period after 2000, my colleague from the Department of Finance would best be able to speak to the government's approach.

However, I can guarantee that a very detailed evaluation of actuarial risks is undertaken by my colleague, the Chief Actuary, who might have a little bit more to tell you.

[Jean-Claude Ménard]

Mr. Chair, concerning the repurchasing of debt, I am not a specialist. That having been said, for several years now we have been doing what follows in the actuarial report. As you know, since 2000, pensionable years of service are capitalized and the funds are invested with the PSPIBR.

In the actuarial report that was tabled in Parliament, you can see how the debt will gradually be moved to the financial markets. As of March 31, 2013, we were looking at a debt of $151 billion, as was mentioned in the Auditor General's report.

Today, roughly 33% of all pension-related debt is invested with the PSPIBR, while the other two thirds are still on the government books. These funds will gradually be transferred as people get older. In fact, in 2040, for example, roughly 90% of the liabilities will be supported by tangible assets.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I would like to hear the representative of the Department of Finance on this subject.

[Nicholas Leswick, Director, Fiscal Policy Division, Department of Finance]

If I understand the member's question correctly, as well as in terms of the accounting process that the Government of Canada respects, it is very much a leader in the context of the OECD in the sense that we fully recognize the liability associated with these plans, whether funded or unfunded, on our balance sheet in the Public Accounts of Canada. When you compare us with Italy, France, and some of our G-7 and larger OECD community partners, we are vanguard, we are out in front, in terms of a clear recognition that these liabilities exist and their presentation in the Public Accounts of Canada.

With respect to the fact that, as the Chief Actuary said, in part, some of these are funded and others are unfunded, our commitment in the context of this audit was to continue or to finalize the assessment of whether or not the unfunded portion should indeed be funded—that the Government of Canada should go and raise $150 billion on capital markets and hand it to the PSPIB for effectively funding and creating an asset pool for those currently unfunded liabilities.

That's part two, but part one, make no mistake, is that these liabilities are recognized in the Public Accounts of Canada.

[The Chair, NDP, David Christopherson]

The time has expired. Thank you.

I'm sure nobody is deliberately trying to confuse me, but Mr. Albas, I understand that you are going to move your time down and that we're now going to Mr. Woodworth.

Is that correct? Okay. Very good.

Mr. Woodworth, you have the floor again, sir.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Thank you very much, Mr. Chair and Mr. Albas.

I'll address my question to you, Mr. Watson. I just need to pursue the exchange we had a few minutes ago.

What Ms. Cheng said is that the reason the Auditor General's report stated that “the plan sponsor does not address the sustainability of the plans” is that there is no statutory onus on the plan sponsor to do that. As I understood her comments, there was some reluctance for anyone to take ownership of that because it wasn't statutory.

But am I correct in understanding that your department, which I understand to be Treasury Board Secretariat, in fact did take ownership for it and did in fact review the plans and take steps to help ensure their long-term sustainability? Is that correct?

[Daniel Watson]

Absolutely.

The entire reason for moving to 50-50, and to changing the terms of the plan to change the retirement age to 65, was exactly to ensure their sustainability going forward.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

I assume that you were comfortable in taking ownership of that without the necessity of having a specifically stated statutory onus to do so, or else you wouldn't have done it.

[Daniel Watson]

We were quite comfortable doing that.

Having said that, there's always room for improvement in something as important as this. But we did it, and we did it quite willingly.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Do I understand that you are intending to duplicate the same process going forward, in some way, shape or form, regardless of whether or not there is a statutory onus to do so?

[Daniel Watson]

Absolutely yes, and we'll set up a committee to work on that.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

That was going to be my next question.

Can we expect to hear about a plan in the not too distant future to address what I expect would be another concern of the Auditor General, that it needs to be a systematic and written process going forward? Can we expect to see that coming out of the committee that you mentioned?

[Daniel Watson]

Absolutely.

We'll be able to do that. We hope to have our first meeting this summer.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

It may be premature for you to answer this question, but do you have any expectation of a timetable to come up with that systematic duplication of what you've already done going forward? Is there a timetable in mind?

[Daniel Watson]

One of the key things is looking at governance. Later this fiscal year, or at the beginning of the next fiscal year, we want to make sure we've done a good benchmarking study. We want to look at other similar players around the world to see what the best practices are in governance. From there, we hope to have a plan that we're able to have considered and approved in the following fiscal year.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

I won't try to push any further on that. I will expect that you'll come up with a first-rate plan and that it will duplicate the success you already had as a result of the 2012....

With that, Mr. Chair, if I have any time remaining, I will defer back to Mr. Albas.

[The Chair, NDP, David Christopherson]

Good.

You have just under two minutes, Mr. Albas.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Thank you.

I hope to have an opportunity to do a more full-time round because I do have a number of questions.

I'm going to start with Mr. Leswick.

On page 5 of the report, it says, “Public sector pension plan liabilities are part of the non-market debt of the Government of Canada's interest-bearing debt.”

I have a quick and simple question for you. It's obviously interest bearing because on the next page there's talk of that. Is this an actual line item, or some sort of internal loan that the government does? Could you explain that a little further?

[Nicholas Leswick]

Again, there's the funded portion and the unfunded portion. In the context of the unfunded portion, this liability is credited with an interest charge that we discount at a rate that is equivalent to a methodology, as applied by the OCG, of a 20-year weighted average of the government's long-term bond rate.

Effectively, even though it's unfunded, the interest charges accrued against the account are in that amount against that procedure.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Are you registering this as an internal line item to say that in the future we do have to do this; we have to carry that so it's in the public accounts. Or is there actual money set aside?

[Nicholas Leswick]

There is no actual money; it's an unfunded obligation. But it is a line item, in the sense that we bring that interest expense into the government's income statement on an annual basis.