Mr. Clyde MacLellan
Chair, Public Sector Accounting Board
Dear Mr. MacLellan,
The purpose of this letter is to provide comments from the Ontario Public Service Employees Union (OPSEU/SEFPO) on the Public Sector Accounting Board’s (PSAB’s) review of Section PS 3250, Retirement Benefits (“the Project”). We believe that the practical effects of these changes will be unhelpful to the health of the province’s public sector pension plans. Ontario’s pension plans are the envy of the world and we think it would be foolish to make unnecessary changes. If there was ever a case of ‘it ain’t broke’, this is it.
Background on OPSEU/SEFPO
OPSEU/SEFPO represents over 170,000 front-line public sector members who work for the Ontario government and other public agencies across the province. We not only represent our members’ rights in the workplace, but also promote social justice issues for the betterment of everyone in Ontario.
OPSEU is one of the largest co-sponsors of Defined Benefit Pension plans in Canada. We represent our members on Trustee and Sponsors Boards in Defined Benefits Pensions Plans with total overall membership of more than one million active and retired members. The pension plans have a combined value of approximately $238.5 billion in assets.
OPTrust – OPSEU Pension Trust
HOOPP – Healthcare of Ontario Pension Plan
OMERS – Ontario Municipal Employees Retirement System
CAAT –College Applied Arts and Technologies
CBS – Canadian Blood Services Pension Plan
VON – Victorian Order of Nurses Pension Plan
Pathways Pension Plan
We actively participate and have a say in the decision-making process of these Jointly Sponsored Pension Plans. We sit on the respective Boards with other unions, organizations and employers. We select our Trustees and Sponsors representatives from our membership who are members of the various plans.
Comments on PS 3250, Retirement Benefits
We recognize this letter comes outside of a formal invitation to comment. However, we believe it is important to provide input given PSAB’s revised project plan, along with its plans to release an exposure draft related to discount rate guidance and deferral provisions in the coming months. We also understand that there will soon be other draft standards released that relate to non-traditional pension plans. We feel it is important to highlight potential concerns and proposed changes that we would ask PSAB to consider as it undertakes its review.
- Applying International Public Sector Accounting Standards (IPSAS) to Canada’s Public Sector Pension Plans is not appropriate.We understand the Public Sector Accounting Board signaled its intent to base future standards on the International Public Sector Accounting Standards (IPSAS) with the ability to deviate from IPSAS standards when appropriate.We believe that PSAB should consider the unique nature of Canada’s public sector pension model, which is recognized as a global leader. Ontario’s unique governance and funding rules are set out in provincial pension legislation and there is a sound basis for PSAB to deviate from IPSAS standards when considering how public sector entities should account for pension obligations. Canada’s jointly sponsored public sector pension plans (JSPPs) are leaders in terms of governance, plan design and investment expertise.Specifically, the governance and funding rules regarding Ontario’s jointly sponsored pension plans are unique and built on the foundation of shared-risk pooling whereby assets and liabilities are not attributed to individual employer groups. Instead, they are shared by all participants and in the unlikely event that a plan is wound up, Ontario pension legislation does not require employers or members to fund any of the deficit. As such, the IPSAS standards do not account for – and are not appropriate to apply to – the unique Ontario rules for JSPPs.
- The proposed changes could result in increased volatility in public sector financial statements.We believe that using discount rates related to the yield on high quality government or corporate bonds and moving away from deferral provisions increases volatility in public sector financial statements. Moving to the market yield of high-quality government or corporate bonds will also result in a higher valuation of pension obligations than the true cost under the funding model.
We believe PSAB standards should encourage transparency and accountability by government decision-makers. We are concerned that these proposed changes will erode transparency and accountability and result in greater volatility in the expense of pension obligations. These changes have the potential to confuse and distract from other government decisions and services to the public.
- The proposed changes would increase administrative costs and add complexity.We are concerned that PSAB may be proposing changes in the standards that are administratively complex, impractical and result in additional costs to public pension plan administrators, sponsors and members as well as governments themselves. Some public sector employers do not have the information or resources to produce and disclose their proportionate share of liabilities and assets.
In addition, there is no readily available or reliable mechanism to reflect an individual employer’s proportion of the obligation within a public sector jointly sponsored pension plan (JSPP) due to shared-risk provisions. Applying an overly simplistic approach to attributing a portion of the obligation to individual employers would diminish the reliability and relevance of the information.
- Supporting Pension Savings is a matter of good public interest.Jointly Sponsored Defined Benefit Pension Plans have accumulated large pools of capital that provide benefits to society beyond providing secure retirement income for their members. These capital pools stimulate long-term economic growth. Canada’s pension plans have also been recognized for their positive contribution to the stability of our financial system. Accordingly, it is in the best public interest that these savings vehicles be protected and supported by organizations such as PSAB.
We are closely monitoring developments related to the PSAB’s review of Section PS 3250, Retirement Benefits. We hope the PSAB will consider the above principles in its deliberations and we look forward to reviewing the next Exposure Draft.
We appreciate this opportunity to share our observations and please contact me if there are any questions.
President, Warren (Smokey) Thomas