Staving Off the Pension Crisis?

John Crocker, President & CEO of Healthcare of Ontario Pension Plan (HOOPP), writes in the Toronto Star, Staving off the pension crisis:

Canada is headed for a retirement income crisis. The last 20 years have seen a steady shift of retirement income risk from employers to workers, and studies show Canadians are not saving enough for retirement on their own.

According to experts, you need about $20 of savings for every dollar of retirement income you want to receive. So if you seek an income of $50,000 a year, you need to save $1 million. If you want $25,000 a year, you need $500,000. Yet the average Canadian has only about $60,000 in his or her RRSP at the time of retirement. RRSPs simply aren’t working for most Canadians.

As a result, I worry that as a country we are undoing decades of success at raising the standard of living for retired people and shrinking the scourge of elderly poverty.

Canadians share my concern. According to research conducted for HOOPP this month, 84 per cent of Ontarians are concerned about not having enough money for retirement. And 58 per cent believe it is principally the role of government — not individuals — to ensure Canadians have adequate incomes in retirement.

The pension puzzle: The issue is adequacy, not coverage

The magnitude of the problem is clear. However, the best, and perhaps most obvious solution — the defined benefit pension (DB) plan — is being overlooked or prematurely dismissed.

My experience at HOOPP has convinced me that defined benefit plans are viable, affordable and must be an integral part of providing retirement income security for Canadians in both the public and private sectors. Our members are not the rich of society. They are the nurses and other working people who provide us with health care. Yet they have peace of mind while working — and a decent standard of living while retired — because they have an annual retirement income that is both adequate and reliable.

Recent years have seen a shift to defined contribution (DC) plans, where employees are responsible for choosing their own investments, with no promise of exactly how much will be there for them upon retirement. Despite the significant downside for employees, DC plans have become popular among employers due to the perception they are more affordable.

It’s time to debunk the affordability myth. A 2008 study by the U.S.-based National Institute on Retirement Security found that DB plans are more affordable than DC plans, assuming the same pension payout. In both types of plans, the inputs from employer and employee are the same, but DB plans yield pension results that are three times or more those of a typical DC plan because DB plans have professional investing, pooled longevity risk, and are ageless — designed to run over the long term.

With a DC plan, the employee pays just as much in contributions — as does the employer — as they would in a DB plan. The core issue is the adequacy of the pension that is offered.

A typical DB plan’s goal is to provide replacement income equal to 67 per cent of working earnings. There’s no such target for a DC plan. They typically generate a pension of about 20 per cent of working earnings.

More DC plans, or their variants, may solve a narrowly defined “pension coverage” problem in Canada. But if one is looking to solve the retirement income crisis that looms ahead, DC plans will not cut it. Well-run defined benefit pension plans will.

The solution: Enable multi-employer private plans

That is why I am calling on governments to enable the formation of large, multi-employer defined benefit pension plans to provide pensions for workers in the private sector.

These funds could be set up either by sector, industry or region. Employees would contribute up to 10 per cent of their salaries to the plan, and employers would match their contributions.

The multi-employer model provides a number of significant advantages. The liability would not be carried on any one company’s balance sheet, making participation more attractive for private corporations. No longer would the full weight of funding be on one set of corporate shoulders. The most important would be meaningful replacement income for every employee upon retirement — not a process where the employee is left on his or her own.

There are two public policy barriers that must be overcome. First, government must change pension funding rules that allow employers to stop contributing when times are good, thus creating problems when the economy worsens. Second, we must abandon the use of “point-in-time” accounting for valuations of pension plans. While plans are designed for the long term, the use of this “snapshot” approach can lead a plan to be found insolvent even when it can pay everyone their entitled benefits. Yet the plan must still “fix” the solvency — spending time and effort on an artificial, technical problem.

Providing every citizen with a livable retirement income will be critical to both Canada’s prosperity and our social cohesion in the 21st century.

The good news is that the solution is in our grasp. Governments must act now to get the rules right, and to show leadership in encouraging the development of new multi-employer DB plans to serve more Canadians.

Together, we need to fix our pension system so that it looks after the retirement income needs of our citizens. If we focus on the right issue — adequacy — we can build a sustainable retirement system that makes sound business sense, while meeting allowing Canadians to retire with dignity and independence.

Mr. Crocker is absolutely right on the benefits of DB plans. Of course, HOOPP is a private DB pension plan, which is why he is calling on governments to enable the formation of large, multi-employer defined benefit pension plans to provide pensions for workers in the private sector.

But what if we were able to offer every Canadian an affordable public defined benefit pension plan? Why not allow private companies to focus on their businesses and leave pensions in the public domain? Companies can still contribute part of the money but they would be offloading the risk of a pension deficit - or worse in the case of a bankruptcy - to the federal or provincial government.

I am tossing ideas out here. Sure, some companies like CN might refuse because they're happy with the way their pensions are being managed, but most other large companies would probably jump on the idea of offloading their pension risk to a universal public pension plan.

If this idea is too radical, then I am all for large, multi-employer defined benefit pension plans to provide pensions for workers in the private sector. Again, we need to make sure these plans are well governed, but this idea also has merits.

It's just that I prefer pushing the envelope even further than Mr. Crocker and saying that pensions need to be a public good, much like we treat healthcare in Canada. There will always be a private system but the dominant system providing pensions for Canadians should be public.

This is my ultimate vision for improving our pension system and I believe we have the collective resources and brain power to achieve this social goal. So let's get on with it. The longer we wait, the harder it will be to create a sustainable retirement system allowing Canadians to retire with dignity and independence.

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A Goldman Opportunity for Reform?

Sharon Churcher of the UK Mail reports, Revealed: British banker 'Fabulous Fab' - the high-flier at centre of huge Goldman ‘fraud’:

This is the British-based banker known as ‘Fabulous Fab’ charged in America with fraud for allegedly selling toxic mortgage investments deliberately designed to fail in the US housing market crash.

Fabrice Tourre was known for his expensive tastes at Goldman Sachs, the investment bank where investigators allege he sold sub-prime mortgage bond products to customers, who are estimated to have lost more than £645million.

The broker, who earned £1.5million a year, moved to London in 2008 after several years with the firm in New York, where he rented a £3,000-a-month apartment and claimed to be from a prominent French family.

One female acquaintance recalled: ‘I speak French so when we bumped into each other I would talk to him in French. He was a well-mannered, handsome guy [who said] he came from a very refined family.’

Tourre, 31, was known in the fashionable block of flats for throwing noisy parties.

‘He had one big blow-out party just before he moved out,’ the acqaintance said. ‘Some of the neighbours got very annoyed.’

The banker is accused of creating sub-prime mortgage investment deals devised to fail. US investigators claim Goldman Sachs lied to investors – the biggest being identified as as the Royal Bank of Scotland group – to make the mortgages sound like a safer deal. Meanwhile, billionaire hedge fund owner John Paulson made bets on the stock market that the investments would fail – earning an estimated £2billion.

American investors claim Tourre bragged in emails about the scheme. Mr Paulson is not accused of any wrongdoing.

A Wall Street expert who helped to raise the alarm about the alleged fraud said: ‘This is the most cynical scheme I ever saw. Tourre was very aggressive about trying to make the assets look better than they were.

'There’d been a raging bull market and that can cover a lot of sins. You could tell from his emails that this was the kind of kid who was in his element.’

Tourre was admired by colleagues, however, for what they called his ‘goofy sense of humour’. He was popular with clients, wooing them over games of tennis. According to a French social networking website, he has a long-term girlfriend.

The banker was a ‘straight-A’ student at the Lycee Henri IV, one of France’s most prestigious schools, housed in 6th Century abbey in Paris.

He went on to study maths at the Ecole Centrale Paris, one of the top French universities and obtained a master’s degree from Stanford in the US.

In London, his office is in a luxurious building on Fleet Street. A Mail on Sunday reporter who called there yesterday was told by an employee that ‘Mr Tourre is not working’.

When he was contacted on his mobile phone, he hung up and his lawyer did not respond to a request for comment.

US watchdog the Securities and Exchange Commission said a formal request would be made for Tourre to return to the country to face charges.

Tourre is a stereotypical Goldman investment banker - young, bright, polished, ambitious, who is able to "woo" clients off their feet.

But when I read this article, I think to myself what is a 31 year old arrogant adolescent (he was 28 years old when he structured this deal) doing structuring complicated deals? Why does Goldman allow neophytes - basically spoiled kids who think they are financial wizards - to play dangerous games like this? And notice how it's always some guy from France from a "prestigious" school with "exceptional mathematical skills" who is behind these complicated derivatives? Maybe these "top" schools should teach these "geniuses" some basic ethics!

It's sad but I've seen so many of these "financial wizards" come peddle super complicated structures and I always think to myself "who'd be crazy enough to invest in these products?". But there is always a fool - or in this case, underfunded public pension funds looking for yield - who will buy the "sophisticated" marketing crap Goldman and other investment bankers throw their way, totally abdicating their fiduciary duties.

On Friday, like millions of others, I received an email from President Obama telling me the time is right for financial reform. The timing of this email couldn't have been more perfect. In fact, it all seems orchestrated to me.

I remain skeptical. If you read Diane Urquhart's comments below on the S&P Annual Corporate Default Survey 2009 & the US SEC's civil fraud charges against Goldman Sachs, you'll understand why:

I have been speaking about the proliferation of induced bankruptcies due to the relatively new credit default swap market and the spike in private equity Leveraged Buy Out (LBO) acquisitions of major corporations. The Standard and Poors Annual Global Corporate Default Survey 2009 released on March 17, 2010 shows that a dramatic spike in bankruptcies is occurring throughout the world, especially amongst corporations that are financed by speculative grade = junk bonds.

On April 16, 2010, the U.S. SEC filed civil fraud charges against the world's largest investment bank, Goldman Sachs, for distributing toxic credit products designed to go bankrupt, so that hedge funds owning credit default swaps could make hundreds of million dollar profits from these bankruptcies.

How is all this complicated high finance relevant to Nortel disabled employees? The Nortel LTD employees are the victims of a Nortel bankrutpcy, where the CDS hedged junk bond owners are making profit from the bankruptcy. The Nortel junk bond owners are making more profits when the over $100 million missing assets in the Nortel Health and Welfare Trusts are not required to be put back into the trust to pay for the long term health wage loss replacement income and medical benefits of the disabled.

I provide below some of the charts from this new 2009 Standard and Poors corporate default study, that tell a compelling story about how the corporate world has changed: it is relying more on junk bond financing and there are more corporate bankruptcies, as a result (see charts 1,6, 14, 19, and 21 in the S&P report).

The percentage of all corporations that issue bonds, who issue speculative grade bonds has been steadily rising from a low of 24% in 1991 to 40% by 2009, a span of close to twenty years. In my opinon, the spike in the incidence of junk bond financing of corporations coincides with the emergence of the credit default swap market.

The junk bond related CDSs outstanding are about $5.2 trillion compared to total junk bonds outstanding of $2.4 trillion. There is now more than two times the amount of insurance on junk bonds than there are junk bonds outstanding.

Needless to say, with this much junk bond insurance out there, the demand to buy junk bonds is high due to buyers being able to buy CDS insurance on the junk bonds and then having less concern about these very high risk junk bonds going into bankruptcy default. The CDS insurance contributes to a higher incidence of corporation bankrutpcies, because credit events, like bankruptcy filings, trigger CDS insurance payments. Lots of CDS speculators, owning a small amount of the junk bonds or not owning the junk bonds at all, are happy to see the junk bond financed corporations fail, since they can make profits on these bankruptcies.

The proliferation of bankruptcies induced by CDS's (and also private equity LBO acquisitions) make it essential that there be Canadian bankruptcy law amendments to protect Canada's most vulnerable citizens, who are the disabled who think their employers provide secure long term disability benefits. When bankruptcies occur, these disabled people are learning the horrible truth about the fine print of their self-insured long term disability plans and the egregious breach of trust going on within their trust accounts.

Senator Art Eggleton's Bill S-216 protects Canada's most vulnerable persons from being placed into poverty by bankruptcies, where large Wall Street and Bay Street banks and hedge funds can make billions of dollars profit. The Canadian disabled need to be removed now from the bankruptcy process driven by these overwhelming negative forces, that our global governments and enforcement agencies are needing to address.

It's infuriating watching banksters get bailouts and bonuses while the disabled get screwed. And don't hold your breath on any meaningful financial reform. I know, I am a cynical bastard, but the banksters control the US government, just like they control the Canadian government. It's all smoke & mirrors to appease the masses who are waking up to the fact that the greatest wealth transfer in the history of mankind continues totally unabated.

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The Growing Pension Divide?

Kevin Gaudet, federal director of the Canadian Taxpayers Federation, writes on the growing pension divide - public workers, and the rest of us:

There is a growing pension divide in Canada. On one side of the divide are those who enjoy generous pensions. On the other side are those who pay for them. Closing this gap is an important project that government needs to undertake.

A recent Canadian Federation of Independent Business compensation survey found public-sector employees at the federal level receive 42 per cent more than their private-sector equivalents, 25 per cent more at the provincial level, and 36 per cent in municipalities. Lavish public-sector employee pension and benefits programs drive this giant discrepancy.

James Pierlot wrote in an article for the C.D. Howe Institute that the median retirement age for a public-sector work is 58, while it is 62 for a private-sector worker. The annual retirement pension income for the same public-sector worker will be five to seven times larger than that for the private-sector worker.

It is no surprise, therefore, that there is a growing frustration felt by private-sector workers who must work longer and pay high taxes longer to provide for public- sector workers who work shorter careers and receive significantly better benefits in retirement.

In 2008, the Expert Commission on Pensions in Ontario stated that the ultimate safeguard for public-sector retirees is the virtual certainty that taxpayers will stand behind their pension plan. Could the Expert Commission be more wrong?

There is a total Canadian unfunded public-sector pension liability of more than $200 billion. Bill Robson of the C.D. Howe Institute estimates the federal liability would add another $58 billion if federal public-sector pensions were costed properly.

Two thirds of Canadians (67 per cent) don't have any pension plan at all, except for whatever they have stashed in the bank or under their mattresses. Twenty-two per cent have defined-contribution plans. Six per cent of Canadians enjoy a defined- benefit pension plan in the private sector. This leaves five per cent of working Canadians enjoying the lucrative benefits of a defined-benefit taxpayer-funded pension plan as public-sector employees.

Defined-contribution plans have employees and employers each contributing to an employee's fund that grows over time and is drawn on in retirement. This type of plan does not create a liability for either the employee or employer since it is limited to what each fund earns over time.

A defined-benefit plan, on the other hand, guarantees annual payments in retirement upward of 60 to 70 per cent of previous salary, paid for life, and indexed to inflation. It's easy to see how shortfalls are created in this situation: The company or government is responsible for the difference between the income generated by pension contributions and the required payments, .

Recently, taxpayers also have had to pick up the tab for unfunded liabilities of private-sector plans as well. Billions of dollars have gone to GM and Nortel pensions.

Finance ministers, led by Finance Minister Flaherty, are now undertaking a national consultation with the aim of reforming Canada's retirement system. Reforms should include ending the gold-plated MP pension plan, replacing it with a defined-contribution plan like those in place for politicians in Alberta and Ontario.

While they are at it, the committee should end Old Age Security and Guaranteed Income Supplement benefits for incarcerated prisoners like Clifford Olson. But the heavy lifting though will come through reducing the size and cost of retirement benefits for public-sector employees.

Government must wean the public sector off of guaranteed pensions and move toward defined-contribution plans. Contribution rates will have to climb, retirement entitlements will have to fall. Some changes will have to be grandfathered. The longer they wait the more expensive it will get.

I have written on pensions apartheid before, and I agree with Mr. Gaudet that you can't have safe, defined-benefit (DB) plans for the public sector while private sector employees work more years and struggle to save up enough to have a half decent retirement. This will inevitably lead to a backlash when taxpayers realize they're subsidizing underfunded public plans.

Nevertheless, I disagree with Mr. Gaudet's solution to the retirement problem. Citing fishy figures from the C.D. Howe Institute - a well known conservative think tank in Canada - he claims that the only solution is to force MPs and public sector workers over to defined-contribution (DC) plans. This is the "private sector" solution, which is no solution at all.

I bet Mr. Gaudet that if the Canadian Taxpayers Federation and the Canadian Federation of Independent Business surveyed self-employed workers and small and medium sized businesses on whether they prefer to be part of a defined-benefit plan over a defined-contribution plan, the overwhelming majority would opt for the safety and security of a DB plan.

But how can we afford DB plans now that we are entering an era of fiscal constraints? There are plenty of answers to this question, but we all need to sit down like adults and discuss all the options on the table. Everyone has to concede something to make this work - unions, workers, the government, taxpayers, insurance companies, pension consultants, and public pension funds.

There are no guarantees that DB plans - even with world leading governance standards - will never be underfunded. But if I had a choice, and if I was designing a system that will address the the long-term health of our pension system, I know where I would be focusing my attention.

I agree with John Crocker, HOOPP's President & CEO, who recently called on all governments to take action to get the rules right, and to take leadership in forming new sectoral plans. Without corrective action now, he warns, the risk of elder poverty will grow as the baby boomers retire.

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Consensus Slowly Building on Pension Reform?

Karen Mazurkewich of the National Post reports, Consensus slowly building on pension reform:

There is a concensus slowly building on the issue of pension reform. Some of the heavy-weights in the industry are weighing in again on the issue after putting it on the back-burner for months.

While the federal government continues to drag its feet and concern itself with another round of pension talks across the country, industry players met Tuesday in Toronto for the Conference Board of Canada/Towers Watson Future of Pensions Summit to talk specifics.

The issue of pension fund reform has blown hot and cold in political circles since the economic crisis. At first, when people saw their retirement savings plummet, they worried that the sky was falling. "But then, as markets rebounded, "they said, well, maybe it's not so bad we aren't falling into an abyss compared to other countries," Jim Leech, president and chief executive of Ontario Teachers' Pension Plan told reporters following his speech at the conference.

The debate appeared to have stalled.

But Mr. Leech believes that while lots of people need to "wake up" to the pension issue, he is optimistic that time has brought perspective and the reform proposals now being put forth are "becoming more refined."

Mr. Leech said the provinces won't venture into reform on their own and there will, in the end, be a federal solution: "We need to innovate. We need to save. Industry, academia and elected officials must agree on this and the path to get us there."

He added: "There will never be a better time than right now for Canada to undertake similarly visonary pension reform."

What has also emerged is a united front among the big multi-employer pension funds. In the wake of strong returns-on-investment for 2009, pension fund managers are flexing their muscles again and taking on mutual fund managers. The heads of OTPP, the Healthcare of Ontario Pension Plan (HOOPP) and Canada Pension Fund Investment Board are challenging notions that defined benefit pension plans are unaffordable. Mr. Leech, in particular, pointed out that RRSPs are not the solution because people don't save enough, and they also carry large administrative fees.

"Defined benefit plans were made unaffordable by short-sighted tax rules and court decisions that have effectively prevented sponsors from saving enough in good times to offset losses in bad times," said Mr. Leech. In fact, they are "far better vehicles for pension saving from both a security and a cost basis for employees and sponsors," he added.

Mr. Leech is calling for a new hybrid pension model that everyone can participate in, can be transferred across provincial lines, and offers some degree of guarantee.

David Denison, president and chief executive of the CPPIB, is also singing from the same song book. He talked to the industry about the advantages of the long-term risk model, and pointed to the weaknesses inherent in the mutual fund industry.

"If you are a mutual fund or institutional manager facing a redemption notice, you have to sell," said Mr. Denison. "By its very design, at CPPIB "not only do we have a stable asset base to work with, but we also have relative certainty of the timing and amounts of excess contributions into the fund over the next ten years," he added.

While Mr. Denison, in his role, cannot advocate an expanded CPP as a solution to Canadians pension worries -- in fact he got his wrists slapped last September when he hinted at it in a speech at the Annual International Conference of Social Security Actuaries and Statisticians -- but his speech Tuesday underscored the new tone of the reform debate: that some kind of pension guarantee for all Canadians is important, and the CPPIB has some important characteristics that enable it to act as a true long-term investor that can capture advantages for the benefit of the 17-million Canadians whose money it manages.

As I stated in yesterday's comment on pension reform, I am all for providing a DB plan to as many Canadians as possible, not just public sector workers. If we do it right, Canada will be leagues ahead of other countries.

But I recommend we start anew, cutting the CPPIB in half and creating new DB plans spread throughout the country. Why? Because the idea of concentrating power in the hands of one big fund worries me, and we should have a few large DB plans - like they have in Sweden - with world class governance standards.

And my standards for pension governance go way beyond what we currently have implemented. We need more transparency, more accountability and less smoke and mirrors.

For example, on Thursday, the Caisse published its 2009 annual report where accountability reporting was greatly improved and it said it was chopping executive bonuses:

The Caisse de dépôt et placement du Québec slashed senior executive bonuses in 2009, a year in which the institution posted a modest 10 per cent return on its investments.

Canada's largest pension fund manager said Thursday that the total amount of incentive pay to senior management last year was $1.1-million, compared with $4.6-million for 2007. No incentive compensation was paid to employees in 2008, a disastrous year in which the Caisse posted a record 25 per cent loss – $40-billion – on its investments.

The fund said in a news release Thursday that the 2009 bonuses were “commensurate with the Caisse's results,” that is, below the industry median.

The Caisse is also moving to further cut costs, with a series of measures aimed at reducing its operating expenses by more than $20-million in 2010. This latest round of cuts follows last year's $43-million reduction in costs, the fund said.

Kudos to Michael Sabia because I know this isn't a popular decision within the Caisse, but that's what accountability is all about. I hear so many pension fund managers whining but I just look at them and say: "Count you're lucky stars that you have a job and just focus on delivering results. You don't deliver, you don't get a bonus. It's that simple. And if you don't like it, take a hike. Stop whining, roll up your sleeves, and just deliver the results."

Meanwhile, the push for pension reform is proceeding:

Canadians shouldn’t let “pension envy” enter in the debate over pension reform, the head of the Ontario Teachers’ Pension Plan said Tuesday.

This is a danger as the private sector increasing moves towards defined contribution pension plans and away from defined benefit plans, Jim Leech said during a keynote address.

Canadians are being told that defined benefit plans are unaffordable, but that is largely because of “short-sighted tax rules and court decisions that have effectively prevented sponsors from saving enough in good times to offset losses in bad times,” Leech said.

“Weak-kneed managements [have], out of expediency, promised unrealistic levels of future benefits in order to dampen salary demands. Their strategy was to show good results today by pushing costs off to the next generation of managers – but the future has now arrived and pensioners are lined up for those promised benefits.”

He made the remarks at the 2010 Summit on the Future of Pensions, a two-day conference that brings together money managers, industry experts, and regulators. It is being held in Toronto by the Conference Board of Canada.

The debate over pension plan reform has heated up in recent months as the stock market decline and the recession have more companies talking about the cost of pension plans and Canadians wondering if they afford to retire.

Federal Finance Minister Jim Flaherty has launched cross-country consultations into pension reform, and many provinces have begun their own discussions.

The private sector is moving away from defined benefit plans, which provide set payments upon retirement that are based on age and years of service. The benefits are pre-determined and the employer is responsible for investment performance.

They are being replaced by defined contribution plans, where the amount paid in retirement depends on the market value of the investments at the time of retirement.

“The truth is that DB plans are far better vehicles for pension saving from both a security and a cost basis for both employees and sponsors,” Leech said.

Researchers have found that defined benefit plans can deliver the same level of retirement income at almost half the cost of a defined contribution scheme.

In part, that’s because professionally-managed defined benefit plans benefit from lower costs and a more balanced mix of assets over a longer time horizon.

“We as a society are in a pickle. Defined benefit pans are being terminated and replaced by defined contribution plans which are inadequate,” Leech said.

Glen Hodgson, chief economist for the Conference Board, discussed the challenges that pension plans will face as economic growth slows down in Canada and other developed nations over the coming decade.

A higher currency and aging workforce will contribute to slower growth, he said. “We now have to think about Canada as the new Norway or new Switzerland where we have a chronically strong currency. We think oil prices are only to rise.”

These factors will put added pressure on pension funds as they also try to manage with a shrinking base of contributions. “That’s going to be the new reality for pension plans across the country,” Hodgson said.

An estimated 75 per cent of Canadians in the private sector workforce have no company-sponsored pension plan.

Finally, please take the time to read Jim Murta's excellent comment on target benefit plans for unrelated employers. I quote the following:

Under a target benefit plan the plan sponsor has no commitment to plan funding beyond a DC-styled contribution. The risks - poor investment returns, increasing longevity, unexpected member terminations, cost overruns, etc. - are shared between workers and retirees. For example, in times of poor investment returns, both pensions being paid to retirees and workers’ accrued benefits are reduced until liabilities match assets. In this case, the biggest hit is to the retirees, who individually have the largest liabilities and whose benefit reduction makes the biggest impact on the financial structure of the plan.

These risks are further exacerbated as pension regulation does not require plans to invest in assets that match the liabilities of retirees nor does it allow the separation of retiree liabilities from other liabilities. The practice of MEPPs has often been to optimize returns to support workers’ benefits. This risk has been compounded by poor governance, which is pretty much universal among the MEPPs that are in trouble. Granting benefits out of temporary surpluses, making or acquiescing in very poor and non-professional investment decisions, unbelievable incompetence and fiduciary duty failures manifest the poor governance. There is no reason to think that target benefit plans will do things differently.

This return optimization will become even more important once the connection between workers and retirees, as exists with current MEPPs, is broken. For new target benefit plans to grow, they will have to promise very competitive benefits to workers. High rates of investment return are needed in order to maximize target benefits or minimize contributions. And, without regulatory constraint management will sacrifice security for growth.

The proposed way to achieve the highest return for plan participants is through a commingled asset pool. The view is that such a pool would have lower administration and investment expenses than anything available today. And, it could invest in assets that are beyond what mutual funds for individual accounts are capable of today. These could include private equity investments, e.g. golf courses, casinos, commercial mortgages, and so on, that offer high rates of return and are not subject to mark to market annual valuations. The room for abuse is obvious, particularly when very large amounts of money are involved, the knowledge to manage such schemes is limited and there is inadequate regulatory oversight.

In the face of this, the expansion of acceptable pension designs to include target benefit pension plans, with unrelated employer participation, is simply asking for trouble. Such plans will be subject to aggressive marketing by entrepreneurs seeking to expand the financial base of their offering. An aggressive investment posture, particularly involving private equities, will be used to justify high salaries for those running the plan. We have seen this before in other financial sectors. It is not in the public interest. It is akin to legalizing Ponzi schemes.

The problems identified above can only be corrected by treating target benefit plans, and any other plans being marketed to non-related employers, as if such were insurance companies and subject to the same standards. Given that regulations are unlikely to change to this extent, the better course is to not allow such plans.

I couldn't agree more. Just look at the dominos falling in the pension probe involving President Obama's former "auto czar"and you get a sense of what abuses can take place in these target benefit plans for unrelated employers. They are fraught with potential conflicts of interest and vulnerable to outright fraud.

Let's quit mucking around and improve on our existing DB plans to provide a solution to the retirement needs of millions of Canadians. If we don't, we are only going to face a much tougher challenge ahead - and by then, it will likely be too late.

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Are We Ready to Fix Our Pension System?

The Toronto Star reports, Lowering costs a vital objective for lifting retirement incomes:

A leading pension expert has priced what is now at stake in Canada’s national debate over how to boost future retirement income.

Keith Ambachtsheer estimates fees on $700 billion held in individuals’ retirement savings plans are sapping about $8.4 billion more than contributors would pay if they could save inside a type of large-scale pension or savings plan.

The cost of fees is about 1.2 per cent of their total savings, enough to cut future retirement income by nearly a quarter.

That constant drag on investment returns only compounds the problem of poor investment decisions and too little savings, he says.

The director of the Rotman International Centre for Pension Management expressed optimism yesterday that, despite a discouraging turn of events this week, there is still a chance that more middle and upper-income Canadians will get a chance to join a low-cost savings plan.

“Those who are impatient to get things done, hang in there, we’ll get there,” Ambactsheeer told a Conference Board of Canada pension conference held in Toronto Wednesday.

The conference is one of several being staged as part of national consultation process aimed at finding agreement on a saleable proposal for ramping up Canadians’ retirement savings.

Until late last year, British Columbia and Alberta seemed prepared to set up a large-scale savings plan for citizens. But they hold off for a potential agreement on a national strategy, including the possibility of a expansion of the Canada Pension Plan. Now Alberta seems to want a go-slow approach.

At another conference in Calgary Tuesday, Alberta Finance Minister Ted Morton said the province would rather see an “incremental” approach — a few regulatory changes to give financial institutions more leeway to encourage people to save.

He said financial institutions should be given about ten years to show what they can do, before governments step in with a heavy-handed approach.

“I think trying to get an expansion of the CPP would be a very hard sell to Albertans,” Morton told reporters.

It’s estimated it would cost workers and employers a total of nearly 16 per cent of pay, instead of the current 9.95 per cent, to double the current maximum CPP pension to 50 per cent of pay. CPP now only about $11,200 a year to someone who has earned more the equivalent of $46,300 a year over about 40 years.

Ontario Finance Minister Dwight Duncan said Wednesday that “Alberta has clearly done a 180 (degree turn).

“Frankly, I wasn’t all that surprised because their initial position — and I don’t want to sound partisan with this — seemed out of character with the general view of government and the private sector.

“British Columbia moved back from its position. I think they went out without looking at all of the economic and political fault lines around this issue, and didn’t really address issues of who would pay.

“That’s why we have taken what I consider a prudent approach, kept a number of options alive and facilitated discussion, and we will continue to do that.”

Duncan said it may be the case that some Canadians would like to save money at a lower costs, but “there are some $900 billion of unused RRSP contribution room. So people may want that, but they are just not doing it.”

He concedes the losses on the stock market in 2008 may have been a wake-up call when it comes to retirement saving.

Indeed, a poll of Ontario adults commissioned by the Healthcare of Ontario Pension Plan, suggests most adults would like a pension that paid about two-thirds of pre-retirement earnings.

“Our survey found that 67 per cent—that’s over two thirds — of respondents were interested in being part of a defined-benefit plan,” HOOPP President John Crocker told the conference.

Of course Canadians want the security of a defined-benefit (DB) plan. Why should DB plans only be reserved for public sector workers, teachers, firemen, policemen and MPs? Don't we all have a right to retire in dignity and security?

I am starting to ask myself a lot of questions about what is best for Canada and how we can rectify some of the serious problems plaguing our pension system. Of course, to rectify the problems, you first have to admit there IS a problem.

If you're a fat cat banker or insurance executive collecting huge fees while you underperform the market, you don't want to change a thing. You're calling Finance Minister Flaherty and Prime Minister Harper, lobbying MPs, telling them to let the private sector deal with our pension ills.

But Keith Ambachtsheer is right, the fees are sapping savings plans because most mutual funds charge outrageous fees and most underperform the market (you're better off investing in a low cost index fund).

But are public DB plans doing any better? Not necessarily, but they do manage to bring down the fees and if they tighten their governance - something which Mr. Ambachtsheer conveniently sidesteps - then they would be better than what the private sector is offering.

Feeling the threat from DB plans, the private sector is stuffing as many industry hacks as possible on the board of directors at public funds. This is part of the governance problem at these large funds and why so many of them are paying ridiculous compensation packages to senior pension fund managers.

Anyways, back on topic. This afternoon, I had an interesting conversation with Susan Eng, VP Advocacy at CARP. Susan isn't a pension expert but she gets it, and she is a quick learner. We talked a little about what needs to get done.

I mentioned that automatic RRIF withdrawals should be abolished and that people working past the age of 71 - people like my dad and many others - should be allowed to shove money back into their RRIFs. Instead, the Government of Canada penalizes these individuals by forcing them to take money out of their RRIFs so they can tax them. This is ludicrous!

But that only helps solve part of the problem because even if they are able to build up their savings, they still need to make wise investment decisions or risk losing it the next time markets get whacked.

Again, we need to offer all Canadians the peace of mind that comes with a defined-benefit (DB) pension plan - not just those that work at public sector jobs. I told Susan that it's sad but more and more younger folks are looking around, seeing private sectors jobs and pensions disappear, and they're opting to work for the government.

I am deeply concerned for the Canadian economy if younger workers are opting for the safety of government jobs instead of working in the private sector. Let's not forget, it's the private sector that generates jobs and tax revenues to pay for public sector jobs and pensions.

But all this tells me that we need to rethink capitalism and the social contract. It simply isn't working. Sure, the financial elite love it as they profit off the misfortune of others, but for the great majority living with constant stress and fear that they will one day face pension poverty, something has to be done.

So what needs to be done? There are many great ideas out there but there is an equal amount of disinformation and fear mongering. For example, I forwarded Susan Eng and Bernard Dussault, the former Chief Actuary of Canada, an article from the Toronto Sun, Expand CPP to meet pension needs:

Expanding the Canada Pension Plan would be the most effective way to ensure Canadians have enough income to support themselves in retirement, a report from an independent think tank said on Wednesday.

Canada’s public pensions replace a relatively low percentage of pre-retirement income compared with other industrialized nations, the Canadian Centre for Policy Alternatives said. The CPP and OAS replace about 40% of the income of someone earning the average wage, compared with estimated needs of about 70% of pre-retirement income, it said.

"There is now widespread concern that unless changes are made, a significant number of workers will reach retirement age without sufficient income to support themselves," CCPA Research Associate Monica Townson said.

"Expanding the CPP, whether by increasing the replacement rate or increasing the level of covered earnings, or both, would address the issue of coverage, security of benefits, and low cost of administration - all the key objectives of pension reform," she said.

Federal, provincial and territorial finance ministers are scheduled to hold a second major summit on pension reform in May, amid concern that private retirement savings are not high enough to support basic living expenses once many Canadians retire.

The rapidly ageing population will make the problem worse, with the baby boomer generation leaving the workforce.

Alberta’s Finance Minister Ted Morton on Tuesday said he would not back efforts to expand the CPP, saying instead changes should be made to encourage people to save more.

He said expanding the CPP, which would mean greater contributions for those remaining in the workforce, would mean the younger generation is shouldering the burden.

"Certainly the unfairness to young Canadians is a serious issue to the current CPP. I don't see why we would expand a system that's unfair to such an important group," he said.

Several options have been put forward for expanding the CPP at various costs to the worker.

The Canadian Labour Congress for example proposes doubling the replacement rate from 25% of covered earnings to 50%. That would take the worker contribution rate from 4.95% to 7.7% by 2016.

A separate proposal put forward by the Federal Superannuates National Association would push the replacement rate to 70%. That would take contributions up to between 15.4% and 19.8% depending on the earnings bracket.

Mr. Dussault was quick to point out that Mr. Morton's argument was totally inaccurate:

Alberta Finance Minister Ted Morton is seriously misinterpreting the impact of a CPP expansion by saying "expanding the CPP would mean greater contributions for those remaining in the workforce, would mean the younger generation is shouldering the burden."

This is totally inaccurate. Indeed, as required by the CPP Act, any improvement to CPP benefits shall be fully funded, whereby each generation is paying for its own benefits.

And as far as expanding the CPP, I told Susan Eng that we need to take the opportunity to create several large DB plans spread throughout our country. We can implement best standards incorporating the best governance rules from around the world, focusing on delivering a safe retirement income for as many Canadians as possible.

I also think the CPPIB should be cut in half. I am against concentrating power in any one big fund. In fact, I think after $100 billion, most public pension funds become too big, too bureaucratic and way too arrogant. Chop them up, and spread them out in different regions.

What else would I love to see? Let's amalgamate all these city pension funds - many of which are terribly managed and chronically underfunded - and roll them up into these new large DB plans. I would also like to offer private companies who are looking to scale back their DB plans or cut them the option of rolling them over into these larger public DB plans.

In my ideal world, private companies would not be in the pension business at all. They can offer to top up CPP contributions, but pensions would fall under the public domain, much like health care does. If you truly think about productivity, this makes perfect sense for the long-run economic health of our nation. But I know I'm dreaming because there are powerful vested interests who want to maintain the status quo.

Finally, Luc Vallée of the Sceptical Market Observer sent me Blake Sutherland's thoughts on the demise of defined-benefit pension plans. This is an absolute must read, exposing some harsh truths that many people are completely unaware of.

I am all for bolstering DB plans. In fact, we have a golden opportunity to fix the pension system, offering all workers the opportunity to retire in dignity. Let's not squander yet another opportunity to revamp our pension system. If done right, we can provide millions of Canadians a better future, one which offers them the peace of mind that comes with a secure retirement.

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Running HOOPPs Around the Competition?

CBC reports Healthcare of Ontario Pension Plan makes gains:

Finally, some really good news on the pension front.

The Healthcare of Ontario Pension Plan (HOOPP) recorded a 15% rate-of-return for the year ending Dec. 31, 2009.

Not only has the plan hit a record high of $31.1-billion of assets-under-management, but it is now 102% funded, which means its 250,000 employees and retirees can breath a sigh of relief that they won’t see any benefit cuts or contribution increases for the foreseeable future.

“When you put the two years together, 2008 and 2009, we are probably one of the few funds that are ahead,” says John Crocker, president and chief executive of HOOPP.

The pension plan can chalk up its good performance to timing. In late 2007, the pension plan reduced its weighting in equities, which limited its losses in 2008.

“We had been in the process for several years, to carefully match our assets to our liabilities,” said Mr. Crocker.

In 2007 the team decided it had too much exposure to equities, and as a result sold $6-billion worth of them.

“That dampened down our volatility in 2008,” added Mr. Crocker. “While other pension plans lost 18%, we lost a touch under 12%, so it saved us a couple billion of dollars,” he said.

Then in 2009, the pension fund took advantage of the poor liquidity and the high spreads in the credit markets. When other lenders were frozen, “we strapped a bunch of once-in-a-generation deals on,” said Mr. Crocker.

HOOPP’s strong results makes it a poster-child for the defined benefit plan, and Mr. Crocker is not going to let all this good press go to waste.

“Defined benefit pension plans hasn’t had people out there publicly defending it, but we will make the case that large multi-employer defined benefit plans pension plans ... is the way to go; it’s the best way to deal with the inadequacy of retirement income for Canadians,” said Mr. Crocker, who is giving a speech at the Conference Board of Canada/Towers Watson Summit on the Future of Pensions this week.

“We operate at a fraction of the cost of banks and others, mutual funds, group RRSPs, defined contribution plans, and we are delivering pretty good results,” he said.

“It’s never too late to pitch government,” he added. With the federal government launching yet another round of town hall meetings across Canada to discuss pension reform, Mr. Crocker is hoping to make an impact. “It’s on the public agenda now,” he said.

Pretty good results? Mr. Crocker is being way too modest. The fact is that HOOPP is consistently delivering solid results at a fraction of the cost of other private and public pension plans with a much stronger focus on asset-liability matching. In effect, they are running HOOPs around the competition.

Unfortunately, HOOPP doesn't garner the media's attention like CPPIB or Ontario Teachers, but it should. Giovanni Legorano of Global Pensions reports, HOOPP returns 15% in 2009:

The C$32.6bn (US$32.5bn) Healthcare of Ontario Pension Plan (HOOPP) posted a 15.2% profit for 2009 on the back of gains in North American equities, according to its 2009 annual report.

This result offsets the losses of 12% the fund incurred the previous year and brings its funding level to 102% from 98% at the end of 2008.

HOOPP president and chief executive John Crocker said: "At a time when many other pension plans are looking at benefit cuts or contribution increases, HOOPP has been able to provide stability to our more than 250,000 members and retirees.

"HOOPP's contribution rates have not increased since the start of 2004, and will stay the same until at least the end of 2011."

In 2009, the pension plan's investments in Canadian equities returned 34.4%, while US equities returned 30% and non-North American equities returned 13.2%.

Canadian long bonds and universe bonds returned 6.3% and 5.1% respectively, and real return bonds gained 14.5%. HOOPP's corporate credit portfolio returned 4.4%.

In addition, private equity returned 5.6% and real estate was down 5.1%.

HOOPP uses a liability driven investing (LDI) approach, according to which it calculated it has to achieve a nominal return of at least 6.5% per cent - or a real rate of return of 4.2% - to meet its estimated pension obligations.

You can go to the HOOPP website and read the press release on 2009 results:

The Healthcare of Ontario Pension Plan (HOOPP) announced double-digit gains of 15.18 per cent in 2009, closing the year fully funded and beating its investment benchmark of 9.77 per cent by 541 basis points.

Ending 2009 at 102 per cent funded means HOOPP has enough assets to meet all of its liabilities – the benefits owed to current and future pensioners.

"At a time when many other pension plans are looking at benefit cuts or contribution increases, HOOPP has been able to provide stability to our more than 250,000 members and retirees. HOOPP's contribution rates have not increased since the start of 2004, and will stay the same until at least the end of 2011," said John Crocker, President and CEO.

One of the main reasons for 2009's success was an asset mix decision to increase the weighting in equities, credit and provincial bonds, which allowed the Plan to take advantage of the recovery in the markets after March 2009. In late 2007, HOOPP reduced its weighting in equities, a move that limited its losses at the end of 2008.

In 2009, HOOPP's Canadian equities returned 34.42 per cent while U.S. equities returned 27.98 per cent, and non-North American equities returned 13.23 per cent. There was also strong growth in fixed income – Canadian long bonds and universe bonds returned 6.31 and 5.06 per cent respectively, and real return bonds returned 14.5 per cent. HOOPP's corporate credit portfolio returned 4.41 per cent.

Private equity returned 5.65 per cent, and while real estate was down 5.09 per cent, it was the portfolio's first negative return since 1993.

"HOOPP is one of the few pension plans reporting positive results for the two-year period of 2008/2009 – our 15.18 per cent returns this year more than offset last year's losses of 11.96 per cent," said Crocker.

HOOPP remains fully committed to preserving the pension promise that once members start receiving a pension, they receive it for life.

HOOPP's liability driven investing approach, which uses the Plan's liabilities as the primary reference point in assessing risk and return objectives of a particular investments, helps to ensure that the most important measure of success is met – and that's to meet the Plan's pension obligations.

The complete details of HOOPP's 2009 performance can be found online in HOOPP's Annual Report, 50 Years of Serving our Members.

You can download and review the complete HOOP 2009 Annual Report by clicking here. You should carefully review this annual report as it is very well written.

Importantly, all the relevant information is there, including benchmarks in public and private markets. They outperformed in public markets, delivering solid returns in both stocks and bonds.

Private markets underperformed their benchmarks as private equity and special situations returned 5.83% (approx. 11% before foreign exchange impacts), just 67 basis points below the 6.5% benchmark (plan funding target) and real estate was down 5.09%, underperforming the real estate IPD Canada benchmark by 411 basis points, and delivering its first negative return since 1993.

I had an interesting discussion on private market benchmarks with Andy Moysiuk, Managing Partner at HOOPP Capital Partners. Andy doesn't benchmark his portfolio based on spreads over public markets, and prefers to use the plan's funding target because such an approach is a "better alignment of interest" with the plan.

Andy had this message to share with me:

Over the two year crisis period HOOPP actually made money (as did private equity). Note we talk about making money, and being in surplus, more than talking about the ever nebulous value add which dominates the industry talk.

... just more HOOPP perspective. Below is the web site extract for my area. We remain the only institution that actually consistently discloses how private equity does, including over the long term (and in my case average annual return is about the same as IRR, the scale decision is also really important), and without adulteration (leaving out, eg. venture, or discontinued activities or other such long forgotten things). Since there is so much promotion going on in institution land these days, you might find it interesting that we have done well, in part due to much more of a growth capital/near venture approach than most, with about ½ of the $1.5 billion invested being in Canada (the balance in Europe and the US). And, as both our limited partnerships and direct investments have performed well over the long term, we remain agnostic to the manner of execution.

Looking at the asset mix below, you'll notice that HOOPP is not allocating aggressively in private markets - roughly 5% in private equity and special situations, and almost 11% in real estate.

Andy thinks that private equity should remain as private as possible, so he looks at a limited number of deals that make sense. He agreed with me that the flood of money pouring into private equity has diluted returns and made private equity at the larger funds far more correlated to public markets (this is why I think bigger funds aggressively weighting their portfolios into PE should still use a spread over public equity indexes as a benchmark, with an appropriate lag).

Where are HOOPP's externally managed hedge funds? As far as I can tell, there are none. Instead, HOOPP manages absolute return strategies internally, which added 1% to the fund's overall return in 2009.

You might have noticed something else. As I wrote last year, HOOPP survived the 2008 financial storm by allocating more into good old government bonds and they were quick to take advantage of the financial markets recovery which took place after the lows in March 2009.

All you "super sophisticated" pension funds out there, take notice. No huge allocations to private equity, hedge funds, real estate or exotic structured products, just good old common sense, and quick response to change their strategic asset mix, protecting against downside risk in 2008, and taking advantage of the recovery in 2009.

Are the folks at HOOPP geniuses? No, they are simply smart and humble investment professionals who take their fiduciary duties very seriously and avoid taking stupid risks.

Larger public funds should take notice and learn from HOOPP's approach. In my opinion, they're running HOOPPs around the competition.

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MPs' Pension Jackpot Derailing Pension Reform?

So far, Canadian pension reform is all talk, no action. Critics are accusing the Tories of being in denial about pension woes:

Older Canadians struggling to pay for shelter and food can be forgiven for shrugging at the latest public talkfest on pension shortcomings, which continues with Finance Minister Jim Flaherty's roundtable discussion in Winnipeg on Monday.

In the wake of the recession, the golden years appear increasingly bleak for many. Nearly a third of all families lack any pension savings, and 1.6 million seniors are trying to get by on less than $15,000 a year.

An aging population, coupled with strained government finances, has imbued the pension situation with a sense of crisis and prompted widespread calls for action. Prime Minister Stephen Harper's government has responded with expressions of concern and has started working with the provinces on options for better retirement security.

But many who follow the issue say the Conservatives are in denial about the severity of the crisis.

Asked what message he expected to take away from a town hall meeting on pensions in Charlottetown on April 6, Flaherty said, "I expect to hear that there are some gaps in the system (but) that overall the system is working relatively well."

"There are some areas in the research that indicate some middle-class Canadians are not saving adequately for their future, and if that's so, that has to concern all of us."

Flaherty stresses that Canada's retirement-security system is one of the best in the world. Improving pensions is a complex undertaking and policymakers must be cautious about change, he says. "The first thing is don't do any harm to a system that works,"

But critics say the right-wing finance chief is not personally disposed to support any sweeping project like increasing contributions to the Canada Pension Plan (CPP). Partly, it goes against Flaherty's philosophy that private solutions are better than government solutions, insiders say. Also, facing deficits totalling $158 billion by 2014, the Conservatives are in no position to invest to bolster pensions.

So the current public consultations, which will feed into a meeting of federal and provincial finance ministers in May or June, appear unlikely to lead quickly to a wide-ranging overhaul of the system.

Labour leader Lana Payne, who attended one of the federally convened pension roundtables in St. John's, said enlisting Ottawa and the provinces in major reforms will be an uphill battle.

"What we're asking for is a kind of big nation-building moment," said Payne, president of the Newfoundland and Labrador Federation of Labour. She was referring to the labour movement's call for an overhaul of the Canada Pension Plan that would increase workers' and employers' contributions and eventually double CPP benefits.

"The recession highlighted and exposed huge cracks in our retirement system," she said. "But we're dealing with a government that would be philosophically opposed to trying to do anything in this kind of a collective way."

The Harper government put a mention of pensions in the March 3 Speech from the Throne, saying it would continue to work with provinces on options to improve retirement income systems. It also established an annual "Seniors Day."

Ottawa and the provinces began work on pension issues a year ago. But much of the intensity behind the project seemed to evaporate in December when federal and provincial finance ministers received a report from University of Calgary professor Jack Mintz. His conclusion – hotly disputed by pension reform advocates – was that the retirement income system in Canada is working well. With that report in hand, the ministers agreed only to public consultations as a way to focus policymakers' discussions.

Susan Eng, vice-president of advocacy for the Canadian Association of Retired Persons, says the Conservatives appear to be stalling.

On the throne speech, Eng said her group "wanted the government to focus on retirement security and pension reform issues, but got Seniors' Day instead."

Of the latest pension consultations, she said, "They're trying to ask the same questions over and over again, hoping to get a different answer, to see if somebody will tell them, `No, we're fine, don't do any more.'"

So why are the Conservatives not in a rush to revamp the Canadian pension system? Part of the answer is that they, and other MPs, have a vested interest in maintaining the status quo.

Don Martin of the Calgary Herald reports, MPs' pension jackpot back in spotlight:

In 75 days, another 75 MPs will join that most exclusive of retirement clubs by qualifying for the safest pension on the planet.

The surviving MP class of 2004 will have reached six years of elected service on June 24 and thus qualify for a minimum $27,000 parliamentary pension at age 55 that will, in some cases, hit six figures by the time they are unelected.

The pension for those lucky MPs and cabinet ministers like Jim Prentice, Rona Ambrose, Diane Finley and late minister of state Helena Guergis is, according to the Canadian Taxpayers Federation director Kevin Gaudet, "the most lucrative in the country."

Protected from stock market free-falls and indexed to grow without interruption at the rate of inflation, the MP pension fund is the closest thing to a guaranteed senior citizen payoff anywhere.

Actually pension "fund" is a misnomer. The MP contributions disappear into a bottomless pot filled with your tax revenue. That means there's no practical limit to payouts from the no-risk plan.

So unbeatably generous is the scheme that conspiracy theorists suggest enthusiasm for a federal election this spring was dampened by MPs, including 18 Bloc Quebecois, who didn't want to risk losing their seats a few months before they hit the federal government jackpot.

The government pension "fund" has been on an interesting track lately, growing by 10 per cent during the recession in sharp contrast to the 21 per cent average drop in the value of private plans and 14 per cent hit on the Canada Pension Plan, according to a recent Organization for Economic Co-operation and Development report.

This jarring contrast comes at a time when finance parliamentary secretary Ted Menzies is roaming the country for a second year in a row consulting on pensions, some grossly underfunded or collapsing amid corporate bankruptcies, while examining the state of retirement readiness for a report to finance ministers in May.

When asked if parliamentary pensions are on the agenda, Menzies confirmed that was not a topic for discussion. And it's a safe bet this outrageous disparity will never be raised in question period, either.

Every time the MP pension plan comes up, one face comes to mind: Jason Kenney.

The current immigration minister and Calgary MP rocketed to fame by using his status as the Alberta Taxpayers' Federation pension-fighter to publicly shame then-premier Ralph Klein into killing the provincial MLA pension plan just before the 1993 election.

Now that's he's just 41 and at top of the food chain politically with his fifth term in progress and no end to a promising career in sight, Kenney is heading for a six-figure pension when he hits 55, payouts enriched by his salary premium as a cabinet minister.

(As an aside, it's odd how the Prime Minister's Office is stuffed with Canadian Taxpayers Federation alumni, including Stephen Harper's director of communications, his senior press relations officer, a pair of PMO researchers and another former CTF staffer in justice. This is an organization that has its origins in taxpayer outrage at political perks in general and parliamentary pensions in particular. Interesting. I digress.)

Despite a government-commissioned report from economist Jack Mintz last December which concluded Canada was not in an imminent pension crisis, public apprehension about retirement income is clearly on the rise.

Alberta's talking about going it alone with a supplemented Alberta Pension Plan. Ditto for British Columbia.

The federal Liberal "deep thinkers" conference last month featured speakers recommending a supplemental plan allowing Canadians to contribute more toward raising their meagre CPP benefits.

The federal government is musing about boosting mandatory contributions or reforming RRSPs and tax-free savings accounts to induce higher retirement savings.

Any reforms now under discussion will be too late for the first wave of baby boomers now heading for the retirement beach. They'll have to live high on the hog or dine on dog food, based on their current savings.

But there's no small irony in having the one group immune from retirement plan risk -- veteran MPs and the orbiting public service -- as the ones responsible for reforming a system causing the rest of us high anxiety about low pension payouts.

Let me comment here. My stepfather spent over 20 years in public office and I know it's a grueling job that takes its toll. He is now working in Europe for the Quebec government, but once he's done, he will enjoy a nice cushy pension. It's part of the benefits that go with public office and someone who completes at least two full terms deserves a pension. Politicians take huge risks running for public office and they deserve some compensation.

But with such powerful vested interests looking to maintain the status quo, it's easy to get cynical and ask if these politicians really want to reform the pension system. Obviously not.

Nevertheless, I warn politicians that if they don't take pension reform seriously, one day their own pensions will be at risk. If you think it will never happen, think again. Start taking pension reform seriously. We Canadians enjoy a good pension system but it can be a hell of a lot better and it can include both private and public sector solutions.

I will discuss my ideas next Thursday in Ottawa at the Senate Standing Committee on Banking, Trade and Commerce. I also invite Prime Minister Harper and Finance Minister Flaherty to meet with me at any time for a one on one discussion. I have nothing but the best interests of our country in mind when discussing pension reform.

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