Supersized Superannuation:The Startling Fair-Value Cost of Canadian Public Service Pensions

Abstract

Governments are major employers, and many provide defined benefit pension plans with full inflation indexing and generous early retirement provisions. Hence, changes in thinking about, and accounting for, the costs of defined benefit pension plans have major implications for government finances. Both past tallies on government balance sheets and current accruals on government income statements may understate the true cost of public-sector employment, and gradual recognition of changes in the financial status of government plans may understate the risks they create. Fair-value approaches are exposing higher costs, risks and funding deficits in defined benefit plans, raising concerns about the security of their promises for participants and the exposure they create for taxpayers. This article examines these issues in the context of the Canadian federal government’s major defined benefit pensions, principally the Public Service, the Canadian Forces, and the Royal Canadian Mounted Police plans.

Keywords: Fair-Value, Liability Discount Rate, Pension Fund, Public Accounts, Public Service Pensions