Government Operations Committee on June 18th, 2013

[The Chair, NDP, Pat Martin]

Duly noted, Mr. Albas.

[Voices]

Oh, oh!

[The Chair, NDP, Pat Martin]

I should point out that I have just seen a graph here that shows that in the year 2009 they did have the obvious dip because of the 2008 crisis, but that in 2010 they spiked up. I don't know if you want to share, Monsieur Leroux, but you had a remarkable recovery in 2010 with a rate of return of 18%, was it?

[Martin Leroux]

You need to recognize that it's also the nature of the market. The market goes up, the market goes down. When there is a crisis, often it's followed by a strong return.

[The Chair, NDP, Pat Martin]

Strong correction steps must have been taken.

[Martin Leroux]

I would say that one of the benefits of being in private asset classes is that some of those asset classes, such as infrastructure, have proven to be more resilient in times of crisis, and that definitely helped the organization weather the storm.

[The Chair, NDP, Pat Martin]

That's interesting.

Mr. Ravignat.

[Mathieu Ravignat, NDP, Pontiac, QC]

Monsieur Leroux, somebody should tell you to take credit when credit is due.

You'd be surprised that I'm not in fundamental disagreement with Mr. Albas's point of view, but I get a little bit nervous when you say that your only mandate is to maximize returns. I think Canadians and those who buy into this pension plan are naturally concerned about how and where their money is invested and whether or not they have a say. My NDP colleague talked about environmental sustainability, and I think the answer was that there is some consideration taken for that.

But what about companies that behave badly when we invest in them? What I mean by that is ethical issues. When we do invest in those companies, and something is found out about problems with their ethical practices, is that taken into consideration? Is that reviewed, and how?

[Mark Boutet]

I would say that we have had an environmental, social, and governance policy since 2002. We have processes that ensure that these considerations are taken into account in all of our investment decisions for all asset classes. We don't do stock screening, as many of our peers don't. The reason we don't is because we believe that engaging companies is a more productive way of effecting change, so we are very active on proxy voting on public companies. Last year we voted at about 3,000 annual meetings. We engaged this year and in the prior year directly with companies of—

[Mathieu Ravignat, NDP, Pontiac, QC]

Thanks for that information. I understand by what you're saying that you don't punish companies you invest in by reviewing your stocks, but you try to pressure them in one way or another to change their behaviour.

[Mark Boutet]

That's correct.

[Mathieu Ravignat, NDP, Pontiac, QC]

How do you go about pressuring them to change?

[Mark Boutet]

We have direct engagement with the companies, and those types of engagements can be, depending on the issues, one meeting or they can be meetings over several years. We do that with an external partner.

[Mathieu Ravignat, NDP, Pontiac, QC]

In your opinion, has that method been successful in the past?

[Mark Boutet]

Well, if you look at our annual report of last year, you will see that we've been making progress on some of the issues that we've identified and the engagements that we've decided to pursue.

So yes, we are making changes.

[Mathieu Ravignat, NDP, Pontiac, QC]

You'll excuse my scepticism, but it just seems to me that if you don't have an ultimate policy that you will act in a severe way, then the likelihood that behaviour will change is low—particularly when there's resistance; I'm sure not all companies are resistant.

[Mark Boutet]

As I say, I'm not the person responsible for responsible investing. Ultimately, do we decide to divest from a company...?

I would have to get back to you on that. But I know that we are very active—

[Mathieu Ravignat, NDP, Pontiac, QC]

It would be interesting to know—you've kind of predicted what I'd like to know—when push comes to shove what you would do.

What would you do in the case where you're actually getting a pretty good return? It would be interesting; and I think Canadians and those who invest in this plan would sleep better at night knowing that at the end of the line, if a company is unethical, then their investment portfolio will reflect the ethical issues on that.

I'd like to go on to something that Mr. Albas made some reference to, and that's the aging population.

What's the percentage of working versus retired public servants? What's the ratio? Have you figured out how that ratio will change over the next 10 years? Have you done any estimates to that end? Does your plan take age changes into account? How do the ratio and fluctuations affect the financial sustainability of the pension plan?

[Jean-Claude Ménard]

Thank you for that question.

The annual Report on the Public Service Pension Plan indicates that the ratio of pensioners to employees has remained relatively stable over the past 10 years, at around 60%. That figure is expected to hit 65% in the near future, 76% in 5 years and 84% in 10 years.

I would like to take this opportunity to reassure the member that the actuarial report already takes that ratio into account. The most recent actuarial report also shows the progression of the public service. In the long term, the growth of the public service is expected to more or less mirror that of Canada's population. The period I'm referring to is 2018 and beyond.

[The Chair, NDP, Pat Martin]

Thank you, Monsieur Ravignat.

Next, for the Conservatives, Kelly Block.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair.

I would like to join my colleagues in welcoming you all here today and echoing their sentiments that this has been very interesting and very informative.

I want to perhaps try to understand the history a little bit better. Obviously, we know that this crown corporation was created in 1999, and the pre-2000 contributions were not invested on....

Mr. Ménard, you were here in 1999. I'm wondering if you can help me understand, or describe for me, what was happening at that time, either in the industry or perhaps in other countries, that had our Government of Canada move to the changes and the creation of this crown corporation.

[Jean-Claude Ménard]

I will give you a bit of a comparison with the OECD countries. There are mainly three ways to recognize the pension promise or the liabilities related to public servants. First, in Mexico, for example, you pay the retirees and you don't necessarily book the liabilities before, when the service is rendered. Second, there's what we call notional funding, which is what we had in Canada before 2000. There were credits representing employee and employer contributions that went into the superannuation account through the Consolidated Revenue Fund. The third way is to back the liabilities by tangible assets, which is what has been done since 2000.

One thing particular to our plan is that when you start to finance years of service starting in 2000, 2001, and 2002, it means that the minute before, 100% of your liabilities are on the government books. As time passes, this liability is transferred and backed by tangible assets. As we speak today, 13 years after the implementation started on April 1, 2000, when we look at the total liabilities, about 30% for the public service is backed by tangible assets, and the remaining 70% for service before the year 2000 is still on the government books.

Going forward to 2050, because it takes that long to move the liabilities, because the pension plan is of a long-term nature, by 2050 almost all of the pension promise will be backed by tangible assets.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

In other words, many OECD countries were moving towards this kind of pension plan.

[Jean-Claude Ménard]

In my view, there were not enough.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

No?