Public Accounts Committee on June 4th, 2014

[The Chair, NDP, David Christopherson]

I call this 31st meeting of the Standing Committee on Public Accounts to order.

Welcome to our guests. Our apologies for the inconvenience. I want to let you know that there's another bell coming in about a half an hour. It doesn't necessarily mean we have to rise. It does mean we will need the unanimous consent of the committee to continue.

I also need to advise colleagues that we need at least a five-minute committee meeting to talk about the next steps; otherwise, we don't have any. We do need a couple of minutes. If the bell is going to happen in a half an hour, and it is a half-hour bell, we could go until the regular time of 5:30, with unanimous consent. We could then shave off between five and ten minutes before that so that we could do committee business. We can either decide that now or I can bring it to your attention as we get closer to the end of the meeting.

Mr. Albas.

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

Mr. Chair, I really want to get to the witnesses so I'll be brief.

I like the second suggestion where you bring it up at that time. The reason is that we have a number of members who would like to ask questions and I'd like that to be the focus for today. If that means letting all the time expire, that's fine with me. We could always look to Monday as a time to do some planning for other activities. This is the Conservative choice and we asked specifically so many people to come here. I'd like the focus to be on the witnesses and their testimonies today.

[The Chair, NDP, David Christopherson]

Agreed. I hear you. I would mention that we don't have a lot.... The only real committee work that we have is planning our business where we're caught up on the drafts. I leave that with you. I agree that we can go that second way.

Let's get going. Is everybody ready to get into a round of questioning?

[Some hon. members]

Agreed.

[The Chair, NDP, David Christopherson]

Okay good. There is one last thing before I do. I have the pleasure to bring to the attention of colleagues that Assistant Commissioner Gilles Moreau will be celebrating his 35th anniversary with the RCMP tomorrow. Congratulations, sir. Well done.

[A/Commr Gilles Moreau, Director General, Workforce Programs and Services, Royal Canadian Mounted Police]

Thank you.

[The Chair, NDP, David Christopherson]

It's good news. Take it because you never know how the rest of the meeting is going to go.

[A/Commr Gilles Moreau]

I'm only costing you 30% of my salary.

[The Chair, NDP, David Christopherson]

Colleagues, we will begin. Mr. Falk, I'll look to you for leadoff. We'll give you a moment to get yourself up to speed.

Mr. Falk, you have the floor, sir.

[Ted Falk, Conservative, Provencher, MB]

Mr. Chairman, thank you for your patience with my delinquency. I'd like to direct my questions to Mr. Watson.

Mr. Watson, one of the questions I have to start off with is, how much will future taxpayers have to pay with respect to the pre-2000 pension liability?

[Daniel Watson, Chief Human Resources Officer, Treasury Board Secretariat]

The pre-2000 liability, I believe, is $150.1 billion. The chief actuary is nodding his head. There are contributions that have already been made against that. My colleague from the Department of Finance could talk about the specific treatment of it. Those are the total liabilities that are there today. There are contributions that have been made against those liabilities that point to the past before 2000.

[Ted Falk, Conservative, Provencher, MB]

What kind of consequences could that create for taxpayers going forward?

[Daniel Watson]

One of the things the Government of Canada has done, and been a leader on, is ensuring that those liabilities are clearly understood and that they're fully stated in all our public accounts. There are no surprises there at all. My colleague from the Department of Finance could provide a little bit more detail on that front. We collected contributions on that and the liabilities are well established and in the public accounts.

[Ted Falk, Conservative, Provencher, MB]

Okay. Thank you.

As far as the plan, how are the investment returns for the plan and when does the plan expect to return to a surplus position?

[Daniel Watson]

The plan has been performing very well over the last 10 years. It beat the target rate considerably. The target rate, as we talked about last week, was 4.1% on an actuarial basis in real terms. It has performed at approximately 6.1% over that time period, including in one of the most significant meltdowns in the recent history of the stock market.

[Ted Falk, Conservative, Provencher, MB]

That's a very good return.

Can you also tell me if all three pension plans are lumped together as far as looking at it as an investment is concerned?

[Daniel Watson]

From the post-2000 period, yes, they are. They are all managed by PSPIB. My colleague Mr. Valentini would be able to speak to some of the specifics there, but yes, they're all invested in the same accounts—

[Ted Falk, Conservative, Provencher, MB]

As far as investment.... Okay.

What would your views be on the C.D. Howe Institute's criticism of the government's accounting standards used to report pensions?

[Daniel Watson]

I'm working hard on managing the plan that I am managing and working with folks on that. I would say that we follow all of the required standards for reporting. I would note that the Auditor General has seen fit to give us an unqualified opinion 15 years in a row of the Public Accounts of Canada, which, to the best of my knowledge, no other major country in the world has come close to.

[Ted Falk, Conservative, Provencher, MB]

Okay, Mr. Chairman. I'm satisfied.

[The Chair, NDP, David Christopherson]

Thank you.

Monsieur Giguère, you have the floor, sir.

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

Thank you, Mr. Chair.

My apologies to all the witnesses for the vagaries of the votes here on Parliament Hill.

My first question is essentially about your overall view. When I read the document that was submitted, I noticed that the studies were all done with a view to the short term. It would have been useful to see objectives for the very long term, especially since we're dealing with pension funds.

What would have been the macroeconomic benefit of investing the full $151 billion in obligations and transferring them to the pension fund post-2000?

As far as the Department of National Defence is concerned, it is currently facing problems related to veterans. Is it a structural problem or purely a temporary one that can be fixed with a few administrative reforms? Should the responsibility for veterans pensions have been returned to the Department of National Defence?

Funded pension obligations apply to crown corporations such as Canada Post, the Canadian Mortgage and Housing Corporation, VIA Rail Canada and CBC/Radio-Canada. Would it have been preferable to put them all in the public service pension fund?

If we look 20, 30 or 40 years down the road, what is your objective for the fund from a macroeconomic standpoint, in order to support Canadian investments? Is that kind of information relevant? If so, can we expect that kind of research to be done at some point?

On the subject of the RCMP, what would the long-term consequences be of police officers unionizing?

In short, talk to us about your plan for 15, 20 or 30 years down the road, when those pension obligations will need to be used.

[Daniel Watson]

I'll start with the question on the crown corporations. Some 40 crown corporations are part of our plan. So the connection in that respect is already quite strong.

As for the post-2000 fund, we are precisely in the midst of planning for the next 15 to 20 years or so. My colleague Mr. Valentini could talk about that.

It really changes the kinds of investments those people have to make. In fact, they haven't yet begun to pay out of the fund because the first ones go back just 14 years, to 2000. That means an entirely different strategy can be used, as opposed to what would have been necessary if they had to start making monthly payments as of today.

That is mainly what I have to say on the subject. Mr. Valentini may wish to speak to how the fund is structured, since he knows he has another 20 or so years before having to make payouts.

[John Valentini, Executive Vice President, Chief Operating Officer and Chief Financial Officer, Public Sector Pension Investment Board]

I want to start by pointing out that our investment strategy is really focused on the long term. As far as what we manage post-2000 goes, we won't be paying out any pensions before 2030, I believe. That gives us the ability to adopt a diversified investment strategy as far as certain types of assets are concerned.

For example, in private markets, we have asset classes that are more liquid. Not having to sell assets gives us a competitive edge. I should tell you that our liquidity gives us one of the biggest competitive advantages we have.

We invest with a very long-term view. I think the fund's value will be much greater than $200 billion by the time we have to start paying out the first dollar in pension benefits. So we can benefit from what we call illiquidity premiums. They give us an advantage. They have already brought us some returns, as the results we just mentioned show. That's an important element as far as our performance management goes.

I'm not sure whether that answers your question.

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

If, every year, you continue to exceed by 2% your 4.1% target, the rate of return you need to meet your obligations, you'll have a tidy actuarial surplus in 30 years' time.