I want to pay tribute to past Canadian governments for having tackled some of these public sector pension issues the way they did. We not only had the reforms to the Canada and Quebec pension plans affecting the broader population, but in 2000 there were major changes made to the federal government's plans.
Since then, some of the contributions going into the plan have flowed into assets. Effectively there are now two accounts in these major plans. If you look at the actuarial reports you'll see that they're segmented out. You've got the pre-2000 obligations and then the post-2000 plans. The post-2000 plans have assets as well as liabilities. That's commendable.
You can go quite a bit further than that if you look at what has happened in the major provinces with the broader public sector plans. The Ontario Teachers' Pension Plan is one of the better known ones. It was one of the first. There are many shared-cost plans in Quebec, British Columbia and Alberta, and a different approach in some of the maritime provinces.
One of the key things in those plans is typically they've adopted quite conservative discount rates by the standards of public sector pensions, and certainly compared to what I was describing in the United States. Part of the motivation for that is just to be conservative. If you think of your pension obligation as to pay the pensions—if that's your primary aim—then it makes you think differently about the types of assets you'll hold. You'll typically focus more on bonds. You're not just trying to chase returns, because you've actually got to have the cash on hand.
In support of that, in some of these broader public sector plans you'll see more conservative discount rates. They focus much more on the funding ratio because, as I say, they're thinking much more in terms of wanting to pay those benefits when they come due.
In the federal government's case there has been a sense of...I won't say it's because we control the central bank, because that's a bit contentious. It's more of an assumption that the tax revenue will just always be there, and that there'll always be the resources there to pay the pensions. Perhaps it seemed less of a challenge to actually think about paying the pension promised from the plan itself.
As a result, at the federal level you still see these discount rates that are just based on history, on an assumption about return on assets. To me that makes no sense. If part of your plan is unfunded—and certainly part of the plan is totally unfunded and part of the rest of the plan is underfunded—there are no assets to earn those returns. You really ought to be thinking about the nature of the obligation. That's the right way to think about it.
You asked about different methods. I would just underline how innovative and successful Canada has been to date with these broader public sector plans. They're actually world-famous. The federal government could usefully imitate some of what we see at the provincial level.