Tweak to PS pension plan sparks pre-election worries

The federal government is changing the way it accounts for its employees’ pension plans — a change that would indicate the plans have a nearly $100-billion deficit.

The government says the move will have no impact on Canada’s finances or the viability of the plans.

But that doesn’t stop Canada’s 17 federal unions from worrying that this accounting change could spark a political blowback.

They fear that those who believe public sector pensions are too rich will exploit this deficit — even though it is only on paper — to lobby for further reductions or reforms to the pension plans of Canada’s public servants, military and RCMP.

Ron Cochrane, co-chair of the joint union/management National Joint Council, said the unions were briefed on the change and accept that it is an “accounting matter.”

But he said they can’t help but question why the government is making the change now — months before an election — after handling the accounting in the same way since the 1920s. “The unions’ big concern is optics and whether this will become a feeding frenzy for the Conservative base and those institutes that favour changing public servants’ pension plans,” said Cochrane. “It has no impact on anyone and everything stays the same, but that doesn’t mean it might not be used to give more fodder for Conservative supporters to make hay and push for changes.”

The change will have no impact on the government’s finances because the employee pension obligations have been accurately recorded in the federal budget and the Public Accounts, which is the government’s overall financial statement.

Treasury Board President Tony Clement wouldn’t comment until the reports are tabled. The annual report and financial statement for the public service pension plan is expected to released Tuesday.

Stephanie Rea, a spokeswoman for Clement, confirmed the change will have no “financial implications” for the government. It will not affect the deficit or government plans to balance the budget in 2015.

She said the change is one of “presentation” only, and was done to bring the plan’s financial statements in line with public sector accounting standards as urged by Auditor General Michael Ferguson and the federal comptroller general.

The unions were also assured the change would have no impact on the plan, its viability, the contributions employees make or the benefits paid to more than 700,000 public servants and pensioners.

So, just what is the government doing?

The federal pension plan has two accounts, one for pension contributions that employees made before 2004, and another for ones made after 2004.

The pre-2004 account, known as the superannuation account, was created in the 1920s as an internal account to keep track of employees’ contributions, interest and benefit payments. It had no cash.

By the 1990s, this account began racking up a massive surplus that became the centre of a long court battle to decide if the surplus was real or not and who owned it, ending up in the Supreme Court of Canada.

Meanwhile, in 2000, the government passed legislation to create a new pension plan that was invested in the market and managed by the Public Service Investment Board.

The government began publishing financial statements for the combined plans in 2004. They included the superannuation accounts as “assets” along with the investments managed by the Public Service Investment Board. This was an interim step until the Supreme

Making billions disappear overnight is an attempt by the government to mislead the public.

Court issued its decision. By 2012, the Supreme Court decided federal employees were not entitled to the surplus and the accounts were nothing more than “ledger accounts” with no real cash or assets.

With the lawsuit resolved, Treasury Board decided that removing the superannuation account’s notional “assets” from the financial statements would more accurately reflect the fact the account was only a ledger account. It would also bring them in line with accounting standards.

It consulted widely with pension experts, the administrators who run the military and RCMP plans.

Ferguson also raised the red flag that if the accounting wasn’t brought in line with standards, his office would issue a qualified opinion on the plan’s financial statements — a black eye on their credibility and the government’s management.

The size of the superannuation account will now be recorded as a note to the plan’s financial statement to be released Tuesday. If the change was applied to last year’s financial statements, removing the notional assets would increase the size of the plan’s deficit to more than $96 billion.

Robyn Benson, president of the Public Service Alliance of Canada, said the chief actuarial reports show the pension plan is adequately funded and viable but that the accounting change could confuse and mislead Canadians.

“The decision by the government to unilaterally remove the superannuation account from the Public Service Pension Plan’s financial statements is therefore unnecessary. Making billions disappear overnight is an attempt by the government to mislead the public on the viability of public sector pensions.”

The public service pension plan is the biggest in the country and critics, ranging from the groups like the Canadian Federation of Independent Business and the C.D. Howe Institute have assailed it as under-funded and unaffordable.

The Conservatives introduced reforms to the pension plan in 2012 that are aimed at saving $2.6 billion by 2018 and an ongoing $900 million a year. Reforms included jacking up contribution rates so employees pay half and raising the retirement age to 65 for new hires from age 60.