May 7, 2015 – The unfunded liability in the pension plans for federal government employees was $90 billion higher than the reported number in 2013/14, says a new report from the C.D. Howe Institute. In “Ottawa’s Secret Debt: The Burden and Risks of Federal Employee Pensions,” authors William B.P. Robson and Alexandre Laurin argue that the way Ottawa reports its pension obligations obscures the cost its plans currently impose on Canadian taxpayers, and leaves Canadians in the dark about how changes in economic circumstances cause that burden to shrink or to grow.
“Defined-benefit pension plans for federal government employees are mostly unfunded,” says Robson. “Economically meaningful reporting of the costs of these plans would spur reforms.”
The most recently published Public Accounts of Canada for 2013/14 report the federal unfunded pension liability for employee pension plans at $153.1 billion. “This figure is largely understated,” says Laurin, “It implies that the government could pay that much to buy its employees out, but the true cost would be far higher.” The C.D. Howe report estimates the fair-value of Ottawa’s unfunded pension liability at $244.4 billion at the end of 2013/14 – more than $31,000 per Canadian family of four, and $91.3 billion higher than the reported number.
Robson and Laurin note that it is possible that public-sector accounting standards will require fair-value estimates before long. Even without such a change, they say, Ottawa can provide the necessary additional information in the Public Accounts, or simply include fair-value numbers in its principal financial statements.
Doing so would ensure that legislators, taxpayers and plan participants themselves have a clearer picture of the problem that needs to be addressed. In particular, they would see that Ottawa’s unfunded pension liability is in the order of one-quarter of a trillion dollars, and that taxpayers are exposed to annual swings in this burden that have recently been in the $30-$40 billion range.
The report concludes that “such knowledge would prepare the way for reforms that would slow the growth of a burden few taxpayers know they bear, and would mitigate risks that few taxpayers know they run.”
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.
Click here for the full report.
For more information contact: William B.P. Robson, President and CEO of the C.D. Howe Institute; Alexandre Laurin, Director of Research, C.D. Howe Institute; or Colin Busby, Senior Policy Analyst at the C.D. Howe Institute, at 416-865-1904; E-mail: amcbrien@cdhowe.org.