A new e-brief from the C.D. Howe Institute by Alexandre Laurin and William Robson says fair-value accounting reveals Ottawa’s employee pension obligations to be larger and more volatile than they appear, a problem shared by European and US state governments.
- The federal government’s net pension obligation under the fair-value approach stands at almost $208 billion – some $65 billion larger than reported in the Public Accounts; to keep pace with benefit accruals and stop the gap from growing, contributions in the latest fiscal year would have had to be almost double what was actually paid in.
- Taxpayers risk finding that responsibility to back-fill the funding hole falls to them – and potentially finding that fears of sovereign defaults by governments with opaque balance sheets and big exposure to public employee pensions drive up the cost of borrowing.
Most federal employees have DB pensions, principally the Public Service (PS), the Canadian Forces (CF), and the Royal Canadian Mounted Police (RCMP) plans, along with special schemes for members of parliament and judges. For higher-income public servants, “retirement compensation arrangements” provide coverage at salaries above the maximum pensionable earnings under federal tax rules for registered pension plans. Some of these plans are partially funded, others completely unfunded. In the recently published Public Accounts for Ottawa’s 2009/10 fiscal year, the balance sheet for these plans was as shown in the first column of Table 1 (e-brief p.2)