Senate presentation on the CBC Pension

December 4, 2014
By

We were invested to testify by the Senate  Senate_Canada_LogoCommunications and Transportation Committee who are looking into the financial sustainability of the CBC.

Bill Tufts was in attendance with Gene Dziadyk actuarial consultant and principal of   Avenue D Consulting Company

Below is a transcript of the opening address of our presentation to the Senate Committee.

 

 

Presentation to the Senate Committee on Transport and Communications

October 27, 2014 concerning CBC pension

Gene Dziadyk at Avenue D Consulting Company, Technical Advisor

 Bill Tufts at Fair Pensions for All.

We examined CBC pension a year ago for the Finance Committee of the House of Commons. Our report to the Committee, “Bigger Bailouts and Deeper Holes” looked at whether Crown Corporation pensions were broadly aligned with those of federal employees. However we strongly believe government must go further and align federal and Crown Corporation pensions with those in the broad private sector, which has seen the light. Defined Benefit
pension has all the ingredients of a perfectly formulated racket.

The CBC pension is unfair, unaffordable, under-funded and unsustainable as economic, investment and accounting models used to justify such plans are, and always were broken.

These pensions are an abomination, an abuse of public trust; unfair to Canadians funding them through taxes, unfair because they create unsustainable worker pension expectations and unfair because they divert significant resources into pensions rather than CBC core operations.

Pension promise puts taxpayer capital at risk. Why would taxpayers knowingly gear the CBC balance sheet, blowing up both sides on securities and interest-rate bets in a phony, shadowy accounting? CBC should justify and employ capital where it has advantage, its broadcasting franchise. That’s what taxpayers should demand. It has no advantage in pension business. But it claims that it does. So why isn’t CBC running world’s investment banks? Massive deficits at $500 million to accrued pension reveal they’re wrong more often than they’re right. The truth is, no one knows whether the market will rise or fall tomorrow, or next month, or next year, though many pretend to.

Who’s reading CBC Pension Report, interpreting and making recommendations based on them?

Report is misleading, a massive scheme, mountains of money (assets at $5.3 billion), plenty in the “long run” (Going Concern surplus at $849 million), but there’s just not enough money to pay everyone what they’re owed in the “short run” (Financial Position Deficit at $486 million). Report states that “positive going concern position indicates the Plan continues to hold more than sufficient assets to meet all long term obligations” but this Plan depends on future taxpayer and worker contributions exceeding future benefits by $1.5 billion. These are soft future assets, for-redistribution, as “hard” assets cannot cover what is owed for work that was done.

It cannot possibly be fair for government to use its power of taxation to privilege what has become an elite, pampered, but not a particularly distinguished group in society.

There’s a perfect storm brewing:

A tsunami of Baby Boomers set to retire.

o Public workers retire earlier, thanks to underpriced early retirement options.
o Life expectancies continue to increase.
o Economic uncertainty and very low rates of return on assets (4.2%) send them hunting for riskier assets in a world where there is no free lunch; and
o Government finances are in shambles across the country, municipalities are stressed; all levels of government are ill-equipped to bailout public sector pensions.

Pension is complex financial business, exchanging wage for promise with many moving parts between design and pricing, investment of wages to the delivery of pension, guided by disciplines of economics, capital markets, statistical mathematics, demographics, taxation, regulation and accounting. Public puts its trust in pension practitioners and unions, under watchful eye of government, but the evidence is that this trust is misplaced, or misunderstood; ideology, not science, rules. There’s no coherent intellectual foundation supporting public sector pension, which operate in defiance of capital markets and
failed predictably.

The history is that Defined Benefit was peddled as cost-and benefit superior to Defined Contribution pension. Government seeing social good gave big fat tax breaks. A huge industry, a group of self-deluded ideologues fed the public half-baked economic mush and propelled DB to the default societal coveted pension model, a remarkable achievement since there’s no money for them in DC.

CBC reports DB liabilities using interest rate crystal balls. Why are they projecting interest rates when markets have already done that?

Thus CBC reports pension liabilities in pretend “DB Bucks” (e.g. $.65 on $1) but pension’s paid in Canadian $ at par, exchanging DB play money until it runs out of real money or sedated workers and taxpayers wake up and realize that they’d been had.

What’s a union doing negotiating pension? Union has no business imposing and dictating terms for an entirely unrelated financial business for the enterprise to undertake, and particularly one that undermines its real business to the detriment of workers it represents. Union focus should be wages. Your predecessors left you saddled with a huge fairness and sustainability problem. You and your contemporaries in the provincial capitals and municipalities have three choices.

• Raise taxes and bailout the plans, let unfairness continue;
• Cut government staff and services brutally and bailout the plans and let unfairness continue; or,
• Fix the root problem – exorbitant public sector pensions We strongly urge you to choose the latter course of action.

Bill Tufts

Gene Dziadyk