Reverse Alberta's Public Pension Changes?

Janet French of CBC News reports that an opposition bill seeks to reverse public sector pension changes in Alberta:
An Opposition MLA is attempting to reverse changes the Alberta government made last year to the control of several public sector pension plans.

NDP MLA and labour and immigration critic Christina Gray tabled a private member's bill on Monday that also seeks to halt cabinet ministers from withdrawing Alberta from the Canada Pension Plan — a proposal floated by Premier Jason Kenney.

"Albertans are very concerned about making sure that they can rely on that retirement, particularly now during the pandemic with the economic uncertainty that is happening," Gray said in a Friday interview.

"Albertans want to know that their money they have earned through a lifetime of contributing to their country will be there for them when they retire."

In its inaugural October 2019 budget, the United Conservative Party government said changes were coming to the oversight and investment requirements of four major public sector pension plans.

Government backs AIMCo

Finance Minister Travis Toews said in the legislature on Monday the government has confidence in AIMCo. He said every pension manager in the world has been hit this year by an economic downturn resulting from the COVID-19 pandemic. The corporation has exceeded its benchmarks in eight of the last 10 years, Toews said.

In a Monday email, Toews' press secretary, Jerrica Goodwin, said government wants to consolidate pension management with AIMCo to achieve "economies of scale."

"AIMCo's size enables it to participate in sophisticated investment opportunities, such as international private equity and real estate investments, that are difficult for some smaller investment managers to access," she said.

Government has no intention of changing its mind, she said. The minister had not reviewed Gray's bill as of Monday afternoon.

Gray's Bill 203, tabled in the legislature Monday afternoon, would reverse the UCP's pension changes and require that a current or future government consult with pension holders before making future changes to the plans' administration.

"The UCP, the party of the free market, is choosing to force all Albertan pensioners to use AIMCo rather than allowing them the opportunity to have competition within the market," Gray said at a Monday press conference. "They are creating a monopoly."

If passed, the Pension Protection Act would also halt Alberta withdrawing from CPP.

Pulling Alberta out of the CPP and creating a provincial pension plan was one of the ideas considered last fall by the Fair Deal panel. The group of MLAs and other Albertans was tasked with holding public hearings and studying ways for Alberta to seize more autonomy from Ottawa. Their report has been submitted to the government, but not yet released.

Gray said the panel floated the idea before Albertans without presenting information about merits or risks of a switch.

In the legislature, Toews said the government would put the question of a provincial plan to Alberta voters in a referendum if ministers believe the idea is worth pursuing.

Three retired teachers opposed to changes to their pension plan also spoke at the NDP's Monday press conference.

'Beyond outrageous'

Retired Sherwood Park teacher Dianna Millard said the change without consultation is anti-democratic.

"I feel powerless and vulnerable," she said. "We're not being listened to and there's no justification for this to be happening at all."

Retired Edmonton teacher Dolaine Koch pointed to an ATRF analysis released earlier this month showing the teachers' pension fund would have been worth $1.3-billion less if managed by AIMCo between 2013 and 2019.

She said when she tried to meet with her MLA about her pension concerns, he told her she could vote for an opponent during the next election if she was unhappy.

Lin Zurawell, a retired teacher from Sherwood Park, said she feels as if the government is reaching into her savings account without her permission and reallocating her money.

"It's beyond outrageous," she said. "It's terrifying. When your pension is your single source of income, it's terrifying to think that your government can manipulate it this way."

Toews said Monday all public sector pension plans are fully funded, and their money is safe and secure.

Previously, cabinet ministers have said switching investment management of teacher pensions to AIMCo would save both taxpayers and teachers millions of dollars each year in fees.

Private members' bills go before an all-party legislative committee before being debated in the legislature. The committee, which has a majority of government members, can opt to recommend the legislature not consider the bill.

The NDP has launched a website to collect stories from Albertans concerned about pension changes. Submissions are automatically emailed to committee members in an attempt to pressure the committee to allow the bill to proceed to the legislature.
I strongly doubt this private members' bill will get past the legislative committee and even if it does, it will be quashed in Alberta's legislature.

There are a few things happening in Alberta which are confusing teachers so let me be clear in my thinking below:
  • As I explained in my comment on hijacking Alberta's Teachers Retirement Fund, the Government of Alberta was wrong not to consult teachers on the proposal to move assets over to AIMCo but it does make rational sense over the long run as significant economies of scale will be achieved if AIMCo manages ATRF assets.
  • I followed up that comment with another one on the teachers' battle heating up in Alberta to go over more arguments on why this proposal makes sense but I also was dumbfounded by another proposal to opt out of the Canada Pension Plan.
  • At the beginning of the year, I wrote a comment on making Alberta's pensions great again, heavily criticizing the proposal to opt out of the Canada Pension Plan to start an Alberta Pension Plan where assets are managed by AIMCo.
  • Then all hell broke loose when AIMCo's volatility blowup hit the news wires. Whether it's $3 billion or $2 billion is immaterial, it was a royal blunder and while AIMCo's CEO has responded, the Board hired OTPP's former Chief Risk & Strategy Officer, Barb Zvan, as well as KPMG Risk to review what went wrong
  • In a recent comment, AIMCo's all too familiar vol blowup, Brett Friedman, Managing Partner at Winhall Risk Analytics, discussed his insights on what went wrong. I also discussed how CPPIB lost C$700 million betting on market volatility but that organization sized the trade appropriately and didn't take the same risks as AIMCo.
I'm giving Alberta's active and retired teachers a breakdown of important comments because there is a lot of confusion and misinformation out there.

Did AIMCo screw up on their vol trade? Yes, absolutely, they did "big time" and there will be repercussions.

Are AIMCo's managers completely incompetent and not worthy of managing the assets of ATRF? No, absolutely not, this is where I truly believe that the organization cannot be judged solely by its vol blowup and that cooler heads need to prevail.

Importantly, AIMCo has top-notch governance (see here and here), scale and is diversified across public and private markets internationally and has important advantages over ATRF because of its size and clout.

That ATRF analysis is biased and compares apples to oranges. ATRF is a smaller plan, it invests in smaller private equity funds which have done well in a bull market but are likely to underperform in a much tougher market. Also, it reports its results at the end of calendar year, not the end of March like AIMCo.

These "simulated ATRF returns under AIMCo's management" are specious and I already addressed many concerns here:
In fact, AIMCo put out a one page backgrounder which you can all read here addressing the difference in year-end performance and discussing the benefits of scale.

When adjusting performance to reflect different year-end reporting dates, it turns out AIMCo's Balanced Fund outperformed ATRF over one year (9.8% vs 9.6%) and more importantly over the last four years, it's pretty much the same (8.2% vs 8.1%) net of all fees.

And this despite the fact that ATRF's Private Markets (Private Equity, Real Estate and Infrastructure) outperformed those of AIMCo over the last four years.

But here too, you need to be careful as AIMCo has a lot of legacy investments it is dealing with in private markets and the mid-market space where the ATRFs of this world primarily invest in has been outperforming of late but not over the long run.

The most important thing in AIMCo's one page backgrounder, however, isn't its 4-year performance edging out that of ATRF, it's the fact that it addresses scale, diversity and governance head on:

When informing Alberta's teachers of the benefits of joining AIMCo, they should familiarize themselves with the mandate and roles of AIMCo as well as its diligence and governance.

Moreover, Alberta's teachers can have joint governance over their pension plan, just like AIMCo's three largest clients. This should address points 3, 4 and 5 of ATRF's letter to the Minister.

The main point I think is lost in all this is that AIMCo is a world-class organization investing across public and private markets all over the world.

Importantly, nothing will happen to Alberta teachers' pensions if assets are managed by AIMCo. If anything, they will be bolstered over the long run because AIMCo at $150 billion+ in assets will be an even stronger force to be reckoned with.

What about Ontario Teachers', OMERS, HOOPP, IMCO and OPTrust? All great organizations but in theory, Doug Ford's government can amalgamate them to to create one big Ontario pension fund just like BCI in British Columbia or the Caisse in Quebec. This will lower administrative costs significantly and improve performance over the long run. In fact, some people have privately told me it's going to eventually happen.

I say in theory because in practice, there will be great pushback as these are all extremely well run, successful and mature organizations and there is no comparable Ontario fund where assets can be moved to amalgamate them.

Again, as I expressed in my last comment on the hijacking of Alberta Teachers' Retirement Fund,  the Government of Alberta made a series of blunders, the biggest one not properly consulting the teachers before moving ahead with this proposal. That was a blatantly dumb and arrogant mistake.

Also, ATRF is a great organization with exceptional people. I feel their angst but as I said, there's no way some people will not be absorbed into AIMCo and they too will be better off over the long run (better compensation, bigger, more stable organization).
There are great people at ATRF at all levels of the organization and I wouldn't be surprised if many of them join AIMCo at all levels of the organization. Not only would this make sense, it's the right thing to do.

The amalgamation of ATRF and AIMCo can be a win-win for all Albertans if done properly.

But let me clear on something, opting out of the Canada Pension Plan to start an Alberta Pension Plan is a bonehead move which will set Alberta back years, if not decades.

AIMCo and ATRF are great organizations but no match whatsoever for CPPIB and anyone who disagrees with me can take it up with me privately but make sure you know your stuff.

Alberta needs to get on with it already, stop spreading lies and misinformation, get the review of AIMCo's vol blowup behind them, make the findings public, and stop dithering on public pensions.

Enough is enough already, I'm tired of writing about Alberta's pension woes, get your act together already!

By the way, Alberta MLA Christina Gray just finished introducing Bill 203 - The Pension Protection Act in the chamber of the Alberta Legislature and posted a clip on Facebook which you can watch here.

I agree with Ms. Gray on CPP savings managed by the CPPIB, not on her insistence that teachers' pensions be managed by ATRF and not AIMCo.

Below, Dr. Deena Hinshaw speaks about Phase 2 planning of the province's COVID-19 reopening plan during a press conference in Edmonton on June 3, 2020. Stay safe Alberta, worry about your health, not your pensions.