Governance lessons from B.C.’s public sector pension plans

While retirement income security is top of mind for many Canadians, British Columbia’s public sector pension plans are noteworthy models that can be emulated by sponsors seeking plan design solutions, particularly when it comes to governance.

Some other Canadian jurisdictions have introduced, or are in the process of developing, pension governance models similar to British Columbia, but none is as comprehensive and applicable to all public sector pension plans. For example, while the Alberta Pension Services Corp. and the Alberta Investment Management Corp. manage and invest for the province’s public sector plans, those plans aren’t jointly sponsored and the Alberta government still plays a major role in their management.

On the Atlantic coast, the Nova Scotia Pension Services Corp. manages and invests for two of N.S.’s largest jointly sponsored pension plans, the public service and teachers’, but doesn’t do so for all public sector plans in the province. And, while Ontario’s well-recognized and highly regarded jointly sponsored plans don’t have a similar shared-services model, the recent establishment of the Investment Management Corp. of Ontario suggests that province is also recognizing the value of B.C.’s shared-services framework.

Read: Ontario establishes new body to manage public pensions, investment funds

The governance model for B.C.’s college, municipal, public service and teachers’ pension plans evolved in the late 1990s following a labour union proposal seeking fully independent pension plans. That notion roused the provincial government’s interest in secure public sector plans. Following extensive stakeholder consultations, the government concluded it could accept joint trusteeship if the provisions were fair, balanced and effective. For example, stakeholders seeking to enjoy the benefits of plan sponsorship would be required to accept corresponding risks and responsibilities. 

So, at the behest of B.C.’s minister of finance, the public sector unions developed a pension plan governance model that adhered to five guiding principles set by the government:

  • Equal sharing of responsibility for the management of pension assets in the best interests of beneficiaries;
  • Sharing of pension contributions;
  • Equal sharing of responsibility for unfunded liabilities generated during joint trusteeship;
  • Equal ownership of surpluses generated during joint trusteeship; and
  • Protection of the plans from unilateral actions by plan sponsors or principals.

This significant undertaking culminated with the passage of the province’s Public Sector Pension Plan Act, pursuant to which joint trust agreements were settled for each of the four public sector pension plans.

Read: Time to extend public sector pension expertise to other plans

An offshoot of the act was the creation of a shared-services model using a common administrative agent, the B.C. Pension Corp., and investment management agent, the B.C. Investment Management Corp. Under the model, both organizations are permitted to provide services to other companies, but their boards are effectively controlled by directors appointed by the public sector plans.

To date, the shared-services model has proved both efficient and cost-effective. The four public sector pension plans maximize their use of the B.C. Pension Corp. by learning from each other’s experiences and setting solid standards of practice based on shared expertise. Significant economies of scale have been achieved and the combined value of the plans’ assets has allowed BCI to offer trustees a much broader and more sophisticated range of low-cost investment opportunities than might otherwise have been available to them.

Three main features of B.C.’s public sector pension model best explain the strength of its plans:

  • Balance between employer and employee interests whereby risks are shared and challenges are met appropriately, with stakeholder input where required;
  • Collaboration and respect for different perspectives, with appointed trustee backgrounds reflecting the diversity of the employer and member groups participating in each plan; and
  • Plan independence from the provincial government.

Read: Report shows pension gap between BC’s government, private workers

While not part of the governance model, the public sector pension plans’ overall success has had a significant economic impact on B.C. and its residents. An extremely high percentage of retired members continue to reside in B.C. and spend their monthly pensions in the province. As well, a 2015 study confirmed that pensions paid by B.C.’s public sector plans add $1.66 billion to the province’s gross domestic product annually, supporting more than 30,000 jobs in the province. Major credit rating agencies also cite the health of the public sector pension plans as a contributing factor to B.C.’s AAA credit rating, which has a positive impact on the province’s annual borrowing costs.