Evidence of meeting #22 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was plan.
A recording is available from Parliament.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
...has been paid out during difficult years. So you have to wonder what the bonuses would have been if performance had been better.
I would like to hear from Mr. Ménard, who represents the financial institutions, on the system we have at the moment.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
I wanted to hear what Mr. Ménard thought about the excessive compensation being provided despite poor performance.
Conservative
Chief Actuary, Office of the Superintendent of Financial Institutions Canada
I have no opinion about the compensation paid to the executives of the Canada Pension Plan Investment Board. That decision is made by the board of directors.
Clearly, as for performance, in order to support the Canada Pension Plan in the long term... In the most recent actuarial report, I said that we needed a real performance of 4.2%, over the inflation rate. If we include inflation, the figure would be about 6.2%.
In the report, we also said that, as of December 31, 2006, as actuaries, we found that the markets were high. Consequently, we reduced the return assumptions for the next nine years. Of course, we did not know when the crisis would hit, but we did use lower return assumptions. For example, for the period from 2009 to 2011, our assumption for the return was 5.5%, and, for the six-year period, the Canada Pension Plan was at 5.7%.
The issue of compensation is not my area.
Conservative
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Thank you, Mr. Chair. Thank you, ladies and gentlemen.
I have a question for Ms. George and the Canadian Chamber of Commerce. Ms. George, you mentioned that plan sponsors are finding that the five-year amortization period is perhaps an unreasonably short period of time to measure the adequacy of funding.
There's also, under the Income Tax Act, a rule that penalizes sponsors for putting in more than 110% of surplus in good years. A few years ago, a number of plans were in that position. Was that a good idea? Is that something the government should consider revising?
Serge Pharand Vice-President and Corporate Comptroller, Canadian National, Canadian Chamber of Commerce
Thank you for the question. This is a good question.
In fact, in our recommendations, which we've submitted to Mr. Menzies' committee, we have recommended that this threshold be increased so that contributions would be....
In fact, we talked about many options this morning as to how we could improve the whole pension system. There are things that can be done to encourage companies to have defined benefit plans. There's a series of recommendations we have submitted that would encourage companies to have good governance of these defined benefit plans.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Thank you.
I have another question for the Canadian Chamber of Commerce. You mentioned the possibility of allowing funding to be done in the short term by way of letter of credit. I've negotiated and drafted a few of those over the years. I know they're as good as the terms written in the letter.
Who would you suggest should set the terms of such a letter of credit? Should it be a standard form letter of credit, perhaps, that is regulated by the federal government?
Vice-President and Corporate Comptroller, Canadian National, Canadian Chamber of Commerce
First of all, letters of credit are not easy to obtain these days, so that's something we would not like to have as a constraint for the 10-year amortization we are recommending.
Letters of credit, nonetheless, can be used to make the payments that would otherwise be made in the plan, or to cover the payments that would otherwise be made in the plan, and whenever the situation turned around, these payments could be made. This is one of the options that can be made available to companies in better times, because these days I think it would be difficult to use.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Thank you.
I have a question for Mr. Ménard.
Mr. Ménard, you mentioned that Canada compares favourably to a number of other countries in the world in terms of the solidity of the Canada Pension Plan. Could you elaborate a little bit? What are those other countries, and exactly where does Canada fit within that top 10 ranking?
Chief Actuary, Office of the Superintendent of Financial Institutions Canada
I mentioned earlier that when I look at the overall pension assets in Canada, at the end of year 2007 they were equal to 140% of the GDP. The other six countries in this group are the Netherlands, Switzerland, Denmark, the U.S., the U.K., and Australia.
There is no doubt that when you have significant pension assets, either with the Canada Pension Plan or with other pension plans, and you have, let's say, an important liquidity exposure, you may be hit hard. For the calendar year 2008, the Canada Pension Plan investment Board returned a negative 14%, but at the same time the markets all around the world were in the range of minus 25% to minus 40%, so it gives me some comfort that in 2008 we were able, to some extent, to mitigate the losses.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Ms. Warmbold, given what Mr. Ménard has just said, why has the CPPIB been able to outperform some of those funds in other countries? What kinds of investments do we do differently?
Chief Operations Officer and Senior Vice-President, Canada Pension Plan Investment Board
Perhaps Mr. Raymond would like to talk about investments.
Senior Vice-President, Public Market Investments, Canada Pension Plan Investment Board
From an overall investment strategy point of view, we have a very broadly diversified portfolio, as my colleague said in her introductory remarks. It includes global equities, private equity, fixed income, inflation-linked bonds, real estate, and infrastructure.
The most important things we did right last year were some of the things we didn't do. We have a very strong culture of risk management, and some of the things we were not involved in were things like the non-bank-sponsored asset-backed commercial paper. We were also not involved in any of the injections of capital into U.S. financial institutions, and I can assure you that we were approached on every single one of those “opportunities”. We just won't invest in something that's opaque or that we can't understand, so I think it was really more a matter of what we avoided than what we invested in.
Conservative
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
--your pension fund advisers made, as opposed to something that you were restrained from doing by law?
Senior Vice-President, Public Market Investments, Canada Pension Plan Investment Board
That's correct, absolutely.
Conservative
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you, Mr. Chairman.
I would like to thank our witnesses.
What is your role as chief actuary, Mr. Ménard? Do you valuate private pension plans?
