Government Operations Committee on Oct. 31st, 2016

[Cory Skinner]

Figures 3 and 4 show a couple of different measures of size versus revenue, and you can see that we have tried to compare it to a selection from the TSX Composite, which are private sector of course. There's the issue of private and public, but Canada Post competes in the private sector, and compared to comparable firms, Canada Post's pension plan obligation and contributions are quite a bit higher.

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay, you mentioned life expectancy assumptions. Are they in line with other similar pensions?

[Cory Skinner]

Yes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay.

What's the biggest risk you see. You say you have a lot in equities right now. What would happen if we get a market shock of 10% or 20%? That seems to happen to my stocks all the time.

[Cory Skinner]

Well, we have solvency funding still in place. If we were to see another crash like in 2008, where I think the plan made something like negative 19%, as did most pension plans—

[Kelly McCauley, Conservative, Edmonton West, AB]

Or even a zero to 5% drop.

[Cory Skinner]

—then we're looking at very large contribution requirements rolling in over the next few years. The averaging mechanism in the solvency funding does moderate the volatility somewhat, but it wouldn't take long before that rolls in. Even on a going concern basis, a shock of that size would be felt.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thank you.

[The Chair, Conservative, Tom Lukiwski]

Madam Ratansi.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Ms. Hemmings, who is managing the Canada Post pension plan at the moment?

[Lynn Hemmings]

The plan administrator is.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Who is the administrator?

[Lynn Hemmings]

Canada Post has a team that manages it, with the money held in trust.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

That's fair enough. Do they receive a level of compensation for managing the plan?

[Lynn Hemmings]

That's a question I would put to Canada Post.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

That's fair enough, not a problem.

When we're looking at the history of Canada Post and its insolvency issue, it's solvent at the moment, but what if it were ever to go insolvent? If the plan is being managed by CP itself, does Canada Post have the management capacity to manage pension plans, like Mercer or the Ontario Teachers' pension plan do? Does it have the core competencies to do it?

Anybody can give me their answer.

Competition, I need to know.

[Michel St-Germain]

Well, there's a huge market of providers to help all sorts of clients, so if they do not have the expertise internally, they can buy it from outside providers.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

If they can buy it from outside, why is Canada Post facing such a problem? From an insolvency perspective, if we are projecting, we know that because it's part of their charter they have to think of insolvency. Do you think Canada Post is facing a problem? We are discussing it here, so pension liability is a problem.

[Michel St-Germain]

The problem the Canada Post plan is facing is frankly no different from what most defined benefit plans, not cost-shared plans or joint governance plans, are facing. There is a problem with the level of the interest rate. With a low interest rate, as it now has, frankly, I'm not sure defined benefit plans are sustainable.

I would recommend that one thing you could do is to make that interest rate higher.

[Voices]

Oh, oh!

[The Chair, Conservative, Tom Lukiwski]

Why are you looking at me?

[Michel St-Germain]

Well, you're the chair.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

We agree. In a market where there is so much volatility, how have you guys managed your constituents' pension plans so that they are not risk averse but are able to mitigate market risk?

Ms. Cover, maybe you can tell us.

[Mary Cover]

We have been doing quite a lot in terms of looking at our asset mix, as an example, and moving over into more liability-driven investments, but really conditional inflation protection has been our strongest funding lever.

A few valuations ago our conditional inflation protection dropped to 60% of inflation protection, and that has had a very strong impact. That's really the core of our success story for managing the markets over the last few years.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Mr. Skinner.