Ontario Slams Alberta's Pension Plan Report

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Matthew Black of Postmedia reports 'only half of the full picture': Ontario government briefing note slams Alberta's pension plan report:

Ontario civil servants believe Alberta’s pension plan report overstates what the province could extract from the Canada Pension Plan (CPP) by leaving out potential liabilities and relying on an “alternate interpretation” of an out-of-date withdrawal formula, according to a pair of internal briefing notes.

The documents were prepared by the Income Security and Pension Policy Division of Ontario’s Ministry of Finance following Alberta’s Sept. 21, 2023, release of its pension report. They were obtained by Postmedia through a freedom of information request.

The authors of those notes challenged the report’s assertion that Alberta would be entitled to $334 billion, or 53 per cent, of the CPP’s assets should it withdraw and form its own pension plan, calling that number “inflated.”

The Alberta estimate, prepared by LifeWorks, ignores the province’s potential pension liabilities which legislation requires it to account for should it choose to withdraw from the CPP, according to the documents.

“As a result, the report appears to consider only one half of the full picture, which likely results in an overestimation of its claimed net assets,” one of the notes states.

“The report may not capture the liabilities associated with all of the individuals who worked for any amount of time in Alberta and have retired elsewhere.”

They argue Alberta’s figure also overlooks reforms to CPP made in 1997 that moved the plan from a pay-go model by increasing contribution rates, establishing an arm’s-length independent investment manager, and changing some benefits.

Those legacy costs, the authors contend, are among the liabilities not accounted for in Alberta’s report.

In pitching the provincial pension plan, the Alberta government has argued that workers and employers in the province have over-contributed to the CPP over the years, with a provincial plan possibly able to provide equivalent or better benefits along with lower contributions.

The notes acknowledge that argument, citing how contributions from employees and employers in Alberta made up about 16 per cent of total contributions in 2020, the latest year available with complete data, while Alberta residents received about 12 per cent of total CPP benefits paid.

“This is because many individuals who worked in Alberta (where they pay CPP contributions) chose to retire elsewhere (where they receive CPP benefits),” the documents state, also noting average and median salaries in Alberta are the highest amongst Canadian provinces.

“Higher average wages result in higher average CPP contributions and higher average CPP benefits being accrued.”

They also point out that the situation is reversed in the Atlantic provinces where eight per cent of total CPP contributions were paid while 11 per cent of total CPP benefits were received.

The authors dispute the “alternate interpretation” of the withdrawal rules while stressing the need for that formula to be updated.

“This ‘alternate interpretation’ taken by the report differs from the legislation,” the authors state.

They also note the Alberta report “has no standing” on the province’s actual potential withdrawal amount, a figure that would always have had to be determined by the office of the chief Actuary (OCA), as per CPP legislation.

“The existing withdrawal formula, if applied now, does not reflect how the CPP operates today,” it reads, referencing the changes made to CPP in 1997.

“It appears that the available CPP assets would need to be overall significantly larger to pay out every province equitably if the existing withdrawal formula was used to determine the share of all provinces.”

The authors also allude to Alberta skirting a moral responsibility regarding the national plan.

“The report does not acknowledge the role of provinces as co-stewards of the CPP. Provincial finance ministers work closely with the federal minister to ensure the financial sustainability of the CPP over the long term.”

Postmedia sent copies of the briefing notes to the office of Alberta Finance Minister Nate Horner along with a request for comment.

“Alberta’s government is confident in the methodology and interpretation of the CPP Act LifeWorks used to prepare this report on a potential Alberta Pension Plan,” said a statement from Horner’s office.

“We look forward to receiving the opinion from the office of the chief actuary.”

Last October, Ontario Finance Minister Peter Bethlenfalvy called for what he termed a “critical” meeting with other finance ministers over Alberta’s potential CPP withdrawal.

Later the same day, Premier Danielle Smith said the pension question would not be put to a referendum until a “hard number” is agreed on.

The OCA is working through its own calculations to determine that figure, though a timeline for when it will be completed and published has not been determined.

In December, Alberta paused its pension plan engagement sessions until the OCA reports back.

Engagement panel chairman Jim Dinning cited the 53 per cent figure as “a barrier,” adding about 50 per cent of responses at prior engagement sessions were opposed to a provincial pension plan with between 20 and 25 per cent in favour, and 25 to 30 per cent still undecided.

The pension question has so far drawn a largely negative reaction from Albertans as seen in those town halls as well as opinion polling, the Opposition NDP’s town halls, emails from the public to the premier, and government flyers being mailed back to the premier’s office.

Between you, me and the lamppost, the Alberta Pension Plan is DOA (dead on arrival).

It's going nowhere and while I applaud Ontario's government for slamming that farcical report from LifeWorks, I suspect others will follow.

I slammed that report on my blog here the minute details were made available.

For transparency purposes, all Albertans and Canadians should know how many millions Alberta's government paid LifeWorks to produce such a shoddy report.

Like I said back then, it has more holes in it than Swiss cheese.

I too look forward to an independent report from the Office of the Chief Actuary of Canada to determine once and for all what an Alberta Pension Plan is and isn't entitled to.

But the bottom line is this: the Alberta Pension Plan was a terrible idea to begin with and the only reason it has gotten this far is politics, bad politics.

We are entering a very difficult Canadian and global recession, now is definitely not the time to meddle with any pension, especially our national pension plan whose assets are properly managed by CPP Investments.

I will end this brief comment by reminding you what CPP Investments' CEO John Graham told an audience in Calgary back in November, emphasizing the national pension is safe and secure:

Talk about a $334-billion elephant in the room.

The head of the Canada Pension Plan Investment Board stopped in the province on Tuesday, speaking to a couple of hundred business leaders at a Calgary Chamber of Commerce luncheon, addressing the board’s third annual Alberta Energy & Growth Forum.

While there was discussion about the CPP’s $6-billion worth of investments in Canada’s oil and gas industry, the speech by CPP Investments chief executive John Graham came smack dab in the middle of a national firestorm around the Alberta government’s pitch to possibly withdraw from the national pension plan.

Graham never mentioned the Alberta government’s controversial ambition to hold a referendum on the province setting up its own plan.

Yet, he said plenty.

The address was subtle and made its points “without going nuclear,” as one person who attended the luncheon later quipped.

In his speech, Graham talked about the merits of the national pension model “and why it’s something Albertans should not want to lose.”

He noted the CPP fund was worth $576 billion by the end of September, with a 10-year annualized net return of 9.6 per cent.

“In a world of constant uncertainty, Albertans need to protect their financial future. And access to the CPP is one way Canadians living in Alberta can protect themselves against an unpredictable economy,” Graham said.

“The business and the public policy case to stay with an established global investment fund, with a proven track record of investment performance, is indisputable.”

Graham also touted the benefits of being in a large pension plan and the portability of the CPP, which allows Canadians to take their pensions with them if they move.

“The CPP is safe, the CPP is secure, it’s strong and it’s overseen by an independent arm’s-length highly qualified investment professionals,” he added.

However, Premier Danielle Smith’s government has been unconvinced by such arguments in the past.

Instead, it’s promoted the merits of replacing CPP with an Alberta pension plan, saying it could save money or improve benefits, igniting a fierce debate in the province and across the country.

A report for the UCP government by consultancy LifeWorks asserts that Albertans are entitled to 53 per cent of the base assets of the CPP — or $334 billion — if the province decides to withdraw, although many experts hotly dispute that notion.

The report contends that if Alberta received that sum, it could lead to an estimated $5 billion in collective savings for a provincewide plan in its first year.

Alberta makes up about 12 per cent of Canada’s total population.

Officials with CPP Investments have previously said the LifeWorks numbers don’t add up. University of Calgary economist Trevor Tombe, who recently released a paper on the issue, has estimated Alberta’s likely amount around $120 billion, or 20 per cent of CPP assets.

Alberta Finance Minister Nate Horner, who will speak to the Calgary chamber on Friday, released a brief statement Tuesday, saying the province welcomes a “meaningful and good-faith conversation around the potential creation of an Alberta pension plan.”

The province has pressed the federal government to come up with its own figure on its share of the funds.

After a meeting of Canada’s finance ministers this month, Deputy Prime Minister Chrystia Freeland asked the Office of the Chief Actuary to estimate how much Alberta would be entitled to if it leaves, based on a “reasonable interpretation of the provisions in the CPP legislation.”

Meanwhile, several premiers and provincial finance ministers, along with federal Conservative Leader Pierre Poilievre, have either raised concern about the effect of Alberta’s potential exit or called on the province to stay in the CPP.

It’s also left business groups and leaders deeply uneasy.

Calgary Chamber of Commerce CEO Deborah Yedlin said business operators are concerned about the uncertainty of leaving the CPP, the portability of an Alberta plan and how it might affect labour attraction.

“We respect the government’s position to examine this as an option. But when you think about it from the certainty and uncertainty perspective, it’s something that we continue to be focused on,” Yedlin told reporters.

“The reality is, there’s no mulligan.”

George Brookman, chair of WCD Inc., attended Tuesday’s luncheon and said he would like to see CPP Investments, the federal Crown corporation that manages the fund, boost its investment in the oil and gas sector in the province.

Yet, he remains concerned about the idea of the province leaving the national pension plan.

“It just sounds more and more like Brexit to me, and that just turns me off,” said Brookman. “I am just not convinced.”

The province introduced the Alberta Pension Protection Act earlier this month, which would require a majority of people casting a ballot in a referendum to vote in favour of a provincial plan before it moved to withdraw assets from the CPP.

Mount Royal University political scientist Duane Bratt said the Smith government has tried to frame the pension battle as a struggle between Alberta and Ottawa, but with other provincial leaders and Poilievre weighing into the fracas, “this is the Alberta government versus the rest of the country.”

The province has been unable to convince the general public or business leaders on the merits of Alberta’s plan so far.

“The government sees no risk, but the business community does,” said Bratt.

“They haven’t been able to sway them.”

I doubt Premier Danielle Smith’s government will be able to sway Alberta's business community or its population that it makes sense to leave the Canada Pension Plan.

I doesn't, not from an administrative standpoint or from an investment standpoint, and the timing of all this is just atrocious with a global recession looming (which will not spare Alberta or oil & gas producers).

My prediction is that after the Chief Actuary of Canada's report, this Alberta Pension Plan is going to go away just as fast as it appeared. 

You will never hear about it ever again.

I'm just as confident about that prediction as I am about the fact that we are heading into the worst global recession since the 1970s.

Buckle up Alberta and Canada!!

Some final food for thought. It's probably a good idea for CPP Investments to open up offices across Canada, including Alberta and Quebec. Start hiring talent from all over the country and make sure you have offices in each province to support them.

Below, CPP Investments President and CEO John Graham provides the keynote address to the Calgary Chamber of Commerce at CPP Investments’ 3rd Annual Alberta Energy & Growth Forum on November 14, 2023.

Also, Norway’s $1.5 trillion sovereign wealth fund is bracing for lackluster performance from markets in the years to come. “I think there is more underlying inflationary pressure,” Chief Executive Officer Nicolai Tangen said in an interview on Bloomberg Television at the World Economic Forum's annual meeting in Davos, Switzerland. "The international central banks will be very careful in cutting rates too quickly because they have been too slow in putting them up.”

Third, Cantor Fitzgerald CEO Howard Lutnick says inflation is still too high and the Federal Reserve is keeping interest rates higher for longer. He speaks on Bloomberg Television at the World Economic Forum's annual meeting in Davos, Switzerland.

Lastly, Guggenheim Partners Investment Management CIO and Managing Partner Anne Walsh anticipates a mild recession — ""a good, old fashioned slowdown in business"" — and for rate cuts to start in March while speaking with Yahoo Finance's Julie Hyman and Brian Sozzi at the World Economic Forum in Davos, Switzerland. 

I agree with everything she states except it won't be a mild recession, it will be a doozy!

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