Federal employee pensions should move to shared-risk model: Ambachtsheer and Leech

It’s time to bring innovation to federal employee pension plans, Keith Ambachtsheer and Jim Leech wrote in an open letter to Finance Minister Bill Morneau last week.

As it stands, these defined benefit plans place the full risk on taxpayers and could become “the Titantics of the 21st century,” note Ambachtsheer, director emeritus of the International Centre for Pension Management at the University of Toronto’s Rotman School of Management, and Leech, the former chief executive officer at the Ontario Teachers’ Pension Plan. 

Read: Are New Brunswick’s shared-risk plans on target?

According to a 2016 report from the C.D. Howe Institute, the undisclosed market value of these plans’ obligations were $269 billion at the end of the 2015 fiscal year, or $118 billion more than reported, according to Ambachtsheer and Leech.

Ottawa should look to provincial public sector plans, such as the jointly sponsored Ontario Teachers’ Pension Plan, they recommend. These plans share risk between the employer and employees, and separate plan administration from the broader, often adversarial collective bargaining process.

Ambachtsheer and Leech point to a recent report by the Standing Committee on Government Operations and Estimates that recommended Ottawa and Canada Post modernize the latter’s defined benefit plan. They suggest studying the possibility of moving to a jointly sponsored, shared-risk model.

“Giving management and labour joint fiduciary responsibilities would produce more cost-effective and fair pension plans,” they write. “Importantly, it would give federal workers a meaningful role in the stewardship of their financial future and preempt any unilateral move by a future government to far inferior defined contribution plans.”

Read: Commons report suggests shared risk as possible option for Canada Post pension plan