March 20, 2007

Pension trial bulletin no. 3

Pension surplus balloons to $42 billion: expert witness

A former government auditor testified in Court that the surplus in the public service, RCMP and Canadian Forces pension accounts have now increased to $42.7 billion.

Scott Milne, an expert in public-sector accountancy and former auditor with the Office of the Auditor General, said that interest and actuarial evaluations have generated additional surplus in the former accounts.  Although a total of about $29.18 billion has been taken by the government from 2000 to 2006, about $12.97- billion surplus is still left in the accounts.  Contributions to these accounts ceased after April 1, 2000, and were channeled to the new Public Sector Pension Investment Board under Bill C-78.  At that time, the surplus stood at about $31.25 billion.

Four days of trial were spent on the testimonies of Milne and Don Lee, a pension analyst with particular expertise in attribution analysis.  Their testimonies support the plaintiffs’ claims that the three pension accounts have assets and that members have claims to a good portion of the surplus.

Milne’s work with the Office of the Auditor General included dealing with the Public Accounts of Canada and auditing the public service pension accounts.  He explained in Court that the pension accounts are “non-budgetary” Specified Purpose Accounts, meaning that the funds in the accounts could not be used to pay for government programs or any other purpose but for the pension benefits of plan members.  Specified Purpose Accounts were created under provisions in the Financial Administration Act.

Milne further testified that the accounting of the pension plans was done on the basis that the plans were funded and that their accounts disclose contributions, investment earnings, actuarial surpluses as well as the portions of such surpluses retired by the government through amortization.  He also said the funds in the accounts meet the definition of “assets,” as set by the Canadian Institute for Chartered Accountants, the body that sets accounting rules in Canada.

“We don’t make bookkeeping entries for fictional or notional transactions,” he said.  “They represent real transactions, substantial events.”

Next in the witness box was Don Lee who presented his attribution analysis for the three pension plans.  Lee’s expertise in this area has been accepted by courts and pension tribunals.

He first explained his method of analysis, which consisted of a review of the history of each plan, the factors that contributed to the surplus and a calculation of the extent to which the surplus grew out of employee contributions.  In each case, his analysis showed that a significant portion of the surplus in each account can be attributed to plan members’ contributions: 42.2% for the public service pension account, 32.1% for the RCMP account and 25.6% of the Canadian Forces account.  His analysis also showed that, in each case, the employer has withdrawn more than its fair share of the surplus.

The trial, which began on February 26, was in recess for March break and resumed on March 19.