Pension trial bulletin no. 1- Expert witness says public pension plans have assets
An actuarial expert testified that assets were transferred from the Public Service Superannuation account to newly created pension plans of local airport authorities, NAV Canada and Canada Post, providing solid evidence that there were funds in the public service pension account.
John Christie, an independent actuarial consultant and Fellow of the Canadian Institute of Actuaries, was the first witness to punch a hole in the employer's argument that no assets existed in the public service, RCMP and Canadian Forces pension accounts. He told the Court that when workers were being transferred from Treasury Board to the local airport authorities and to Crown Corporations, assets were withdrawn from the federal public service pension plan to cover the costs of their pensions which went with them. "New, independent trustees received a series of cheques and these were invested by an investment manager," Christie said in explaining how assets were transferred from the public service superannuation account. He added that the public service pension account showed a subsequent reduction due to the transfer. Christie sat in the witness box for three days and gave his analysis of how the public service, RCMP and Canadian Forces pension plans were funded and managed since the 1970s. Using charts and bar graphs, he summarized the results of a series of actuarial evaluations which reported a deficit in the 1970s. He testified that this was predictable given that the actuarial calculated costs were higher than what the employer was required to contribute by law and that the actuary did not make provisions for general salary increases until 1977.
However, after 1986, the actuarial evaluations began to report surpluses. These were mainly due to changes in actuarial assumptions, and not through the employer having covered the plan deficits or shouldering unforeseen risks, according to Christie. In fact, he demonstrated that the employer had taken what was essentially a contribution holiday -- which had no provision in legislation at the time - by using surpluses generated by the funds to reduce the employer's contribution to the plans. As well, the employer had put a cap twice on indexing for inflation in the mid-1980s, which, given the high inflation rates at that time, caused a 6.9-per-cent reduction in pension benefits paid out to retirees. The net effect was that the plan members bore a considerable amount of the risk during this period through a lifetime reduction of 6.9% in their indexed pension.
Christie's clear and deliberate testimony provided evidence against the startling claims made by Toronto litigator, Alan Lenczner, in his opening statement earlier in the trial. Lenczner has been retained by the Harper government to lead an extensive team of Justice Department lawyers in this case. Lenczner argued that plan members have no claim to the surplus because there was no surplus in the account in the first place but an "over-recording of liabilities." He further argued that the pension accounts are not the pension promised by government but are mere mechanisms to track government costs. "No money flows anywhere. It's just numbers on a ledger sheet," he said. Lenczner, on several occasions, raised objections to documents, procedures and decisions that had already been agreed to in eight years of pre-trial deliberations.
Government lawyers also tried to paint the plaintiffs' claim as superfluous by playing up on the widespread stereotype of the spoiled bureaucrats with fat pensions. "The point is, as you approach this case," they advised the judge, "this is a generous benefit which many Canadians do not have." Christie pointed out that the level of the pension benefits should not be considered in isolation but rather within the actual total compensation package. He also testified that the introduction of Bill C-78 in 1999 significantly increased employee contributions to the pension plans by as much as 21%. The government further introduced additional increases of 0.3% per year from 2005 to 2013. In contrast, changes introduced by the Act only allowed for a slight improvement in benefits to plan members in the range of 1% to 4%.
Christie, in his experience as a private consulting actuary representing both pension plan sponsors and employees, said that he has never seen a case where a significant increase in employee contributions was introduced without a corresponding improvement in benefits, especially when there were actuarial surpluses.
The trial, which began on February 26, will recess for March break and will resume on March 19.
© The Professional Institute of the Public Service of Canada