Canadian Public Sector Pensions: Federal & Provincial Updates

By: Neil Hrab

For members of the large Canadian public sector pensions, one item of interest in the federal budget was the government's effort to entice those organizations to invest more domestically -- specifically in Canada's tech and life sciences sector.

Changes to the laws and regulations that govern Canada's pension sector, like in other jurisdictions, tend not to come through elaborate government-led attempts at wide-ranging reforms. Elected officials will generally prefer to play it safe, and amend or fix individual parts of the pension policy status quo, rather than propose wholesale change.
 
For example, the Canadian federal government on November 4th announced a new budget that included some pension-related housekeeping-type initiatives. 
 
One of these is a promise to crack down on the alleged practice of some employers, particularly in the Canadian trucking industry, of deliberately classifying employees as contractors. By doing so, those employers are able to save themselves the trouble of “withholding and remitting the proper amounts of…Canada Pension Plan and employment insurance contributions” on behalf of their workers (CPP is the Canadian equivalent of U.S. Social Security).              
 
For members of the large Canadian public sector pensions, one item of interest in the federal budget was the government's effort to entice those organizations to invest more domestically -- specifically in Canada's tech and life sciences sector. There has been an on-again, off-again national debate on whether the Canadians pensions should invest more at home (and how the federal government could promote that objective); Canada's deteriorating trade relations with the U.S. has helped re-energize that debate.
 
To nudge its domestic investment goal forward, the federal government's November budget announced the creation of a new Venture and Growth Capital Catalyst Initiative, to be overseen by the Business Development Bank of Canada (equivalent to a “government-sponsored enterprise” in the U.S. setting). The government plans to take further steps that it hopes will “incentivis[e] pension funds and other institutional investor[s]” to get more active in the venture capital initiative.
 
The concept of leaving the final decision on participation up to the pensions is important here. Including it in the budget acknowledges and signals respect for the traditional “arm's length” relationship between the public sector pensions and the levels of government that oversee aspects of the pensions' operations.
 
One can see a similarly cautious, piecemeal approach to pension issues in the recent Ontario provincial (equivalent to state government) government's Fall Economic Statement. A section of that document labelled “Modernizing Ontario's Pension Sector” covers a grab-bag of pension related initiatives being championed by the government, including:

• Changing relevant legislation to enhance the “governance [and] strengthen transparency and accountability” of the Ontario Municipal Employees Retirement System (OMERS), a public sector pension serving more than 600,000 active and retired members working in Ontario's local government bodies. This followed an approximately year-long review of aspects of OMERS governance and information-sharing with members by an independent reviewer, who has recommended a variety of governance changes after direct discussions with OMERS stakeholders, including many labour organizations.
• A review of Ontario's Pension Benefits Guarantee Fund (PBGF), which “helps protect the pension benefits of the people of Ontario who are members of defined benefit pension plans in the event of employer insolvency” by acting as a financial backstop.
• Looking at ways to assist some smaller workplace pensions in Ontario that may wish to merge with larger pension organizations (helping reduce operational costs) on related issues, including possible governance models.

Neil Hrab worked in the Canadian defined benefit pension sector for 12 years. His views are entirely his own.