Public Accounts Committee on Oct. 31st, 2018

[Kelly McCauley, Conservative, Edmonton West, AB]

Post-2000, are you satisfied with the discount fund? It's one pension system. For one employee who has been here pre-2000, their pension doesn't change. It's the same obligation, but we have two different discount rates, which goes against a lot of international standards and PSAB recommendations. Are you comfortable with a different discount rate for the post-2000 pensions?

[Michael Ferguson]

The government has always kept the pre-2000 and the post-2000 separate. It has done that forever. At least since 2000 when that happened, it has been keeping those two items separate in its financial statements.

Public sector accounting standards say that when you have a funded portion of pension promise, you use the assumed rate of return on the plan assets as your discount rate. For the funded part of the plan, they use the assumed rate of return because that's what accounting standards say you use.

For the unfunded portion, you are supposed to use a discount rate based on your borrowing rate.

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay.

[Michael Ferguson]

There was a method the federal government was using, and over the years it was becoming more and more evident that this method was not producing the right discount rate. We talked to the comptroller general's office about the issue, and they realized that they needed to look at all of their discount rates, which they've done over the past two years. They've made the change.

Yes, I'm satisfied that they now have the right method of calculating the discount rate for the unfunded portion of the pension plan. They've always had an appropriate rate for calculating the discount rate on the funded portion of the pension plan.

[Kelly McCauley, Conservative, Edmonton West, AB]

I've been reading the submissions to the PSAB study they're doing on discount rates right now. It's incredibly fascinating reading—actually, it's as dry as heck. Every single organization—and I think 25 have written in.... Even the Treasury Board submission says it's six of one or half a dozen of the other how you do the asset-backed portion from 2000 forward. If PSAB comes out with a different recommendation, should we be changing how we're doing the discount?

Mr. Huppé, Mr. Rochon or the others, you can chime in on that.

[Michael Ferguson]

When we talk about giving the federal government a clean audit opinion for 20 years in a row, we are judging its accounting against the public sector accounting standards. If the public sector accounting standards require a change in how something is accounted for, we expect the government to adopt that within whatever transition period the public sector accounting board specifies.

[Kelly McCauley, Conservative, Edmonton West, AB]

You just recommend change, much as you did for the pre-2000?

[Michael Ferguson]

We wouldn't have to recommend it—we would just expect it.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Would you say likewise, Mr. Huppé or Mr. Rochon?

[Roch Huppé]

Likewise. Obviously, we would align with any changes in the public accounting standards.

[The Chair, Conservative, Kevin Sorenson]

All right. Thank you, Mr. McCauley.

We will now move to Mr. Sarai.

[Randeep Sarai, Surrey Centre, Lib.]

Thank you.

I have a few questions. If we were to write off the loan, that would take it off the books but it wouldn't extinguish liability. Am I right? The person who's owing that amount still owes it. The government has assumed that the ability to collect on that is gone.

I'm just curious. What's the percentage of bad debt that actually gets collected? Is there a percentage?

[Roch Huppé]

I don't have the global amount offhand, but having previously been a CRA employee, I can tell you that's a good question. I've had that question many times in committee.

Out of the writeoff, if my memory is correct, every year we collected around $200 million to $250 million of money stemming from written-off accounts.

[Randeep Sarai]

Do you have any idea of what that is as a percentage of the written-off debt? Would that be like a low 10%?

[Roch Huppé]

If you take a look at the previous years, usually the CRA's writeoffs will be around $2.8 billion to $3.2 billion. Obviously, the amount I'm quoting here, around $200 million, is not on that particular year. They are stemming from accounts that have been written off.

[Randeep Sarai]

Could it be 10% of that?

[Roch Huppé]

It's a small portion, obviously, but as you say, if there's a reason we think we could collect, the debt is not necessarily extinguished.

[Randeep Sarai]

I'm just trying to get a handle on this. When you say unfunded prior to the nineties for pension liabilities, does it mean amounts to pay are short, or may be short, or other, in terms of pensions?

[Roch Huppé]

As I explained a little bit earlier, on the contributions, unfunded and funded, in both cases, we've received the contributions from employees and employers. I would tell you right now, as you can see, for the liability, the unfunded shows as a full liability. The pension fund is in a slight deficit position, but if it's unfunded, logically it is a liability, correct?

I don't know if my team has a number on the actual unfunded.

[Paul Rochon]

But the key point is that the liability is recorded in the current debt, so if I retire tomorrow, all of the liability the government will incur from my pension plan is already recorded in the debt.

[Randeep Sarai]

Okay.

[Paul Rochon]

What happens afterwards is cash payments.

[Randeep Sarai]

For layman's purposes, let's say you need $100 for retirement. It's saying it's underfunded by $10. Does that mean the government has to raise $10 by the time that total fund is short, or does that mean we expect it to be full by the time it is paid out, and that by that time, we will have that $10?

I'm really being simplistic. It's more for the viewers out there.

[Paul Rochon]

It's not a question of the liability the government has, but of the cash needing to be paid out. The pensions we are saying are unfunded will affect our future cash flows in a negative way. They will not affect the liability of the government. That deficit won't change, but the cash requirements will go up.