Pension surplus an asset, fund administrator says

A major public service pension plan co-sponsored by Queen’s Park says the auditor general should include billions of dollars of its assets on the government’s bottom line.

Thestar.com
Feb. 10, 2017
By Robert Benzie

A major public service pension plan co-sponsored by Queen’s Park says the auditor general should include billions of dollars of its assets on the government’s bottom line.

In a blow to Auditor General Bonnie Lysyk’s contention that $10.7 billion in pension funds can no longer be considered an asset, OPTrust said “public interest is best served by recognizing any accounting surplus.”

Lysyk’s unexpected accounting change in September effectively wiped away $1.5 billion from the province’s annual balance sheet.

Resolving the accounting dispute is crucial to Premier Kathleen Wynne’s government, which has promised to balance the books in Finance Minister Charles Sousa’s spring budget.

As first disclosed by the Star, a government-appointed panel of four experts will announce Monday that such joint-sponsored pension surpluses should be counted as assets for the provincial treasury.

OPTrust — which administers the Ontario Public Service Employees’ Union Pension Plan that has $18.4 billion in assets, is fully funded, and serves 87,000 workers and retirees — bolsters that assessment.

In a memo to members posted on its website Friday, the pension administrator warned “the failure to fully recognize risk-sharing in accounting would raise questions about the plan’s governance and possible outcomes.”

“Our two sponsors, the government of Ontario ... and Ontario Public Service Employees Union ... share equally in the risk, reward and governance of the plan,” the OPTrust memo states.

“The public sector accounting rules - and accounting rules in general - are intended to and should result in a faithful representation of the economic realities of public pension plans,” it continues.

“To the extent the plan sponsors are required to fund plan deficits and are entitled to benefit from plan surpluses, any interpretation of accounting rules and the resulting accounting must be transparent to stakeholders, including taxpayers, and must treat deficits and surpluses in a uniform manner.”

OPTrust stresses that “therefore, surpluses and deficits should both be recognized on the province’s balance sheet.”

“Not recognizing a surplus on the balance sheet ... not only leaves a large amount of assets off the province’s balance sheet ... (but) weakens disclosure as well as transparency by giving those that read the province’s financial statements an incorrect perception of how the plan functions.”

Lysyk decreed last fall that the surpluses of the OPSEU plan and the Ontario Teachers’ Pension Plan, which the government also co-sponsors, are not public assets because Queen’s Park cannot readily access the money.

Her move came even though she had signed off on those same pension assets in previous years - as her predecessors had dating back to 2002.

The auditor general, who was briefed on the experts’ conclusions on Feb. 3, has declined to comment until the report is officially released.

But she suggested to the Star’s Martin Regg Cohn on Monday she hasn’t heard anything from the panel - led by Tricia O’Malley, chair of the Canadian Actuarial Standards Oversight Council - that would change her mind.

“We did our homework, and we did a lot of work,” insisted Lysyk, defending her actuarial interpretation, which was also disputed by non-partisan provincial bureaucrats.

Earlier this week, Wynne welcomed the blue-ribbon panel’s input.

“There was a conflict between the advice that the auditor general is giving us and the advice that our officials were giving us,” Wynne said Tuesday.

“We sought independent third-party advice and you know we have to take that independent advice very seriously,” she said.

“What we have to do as government is get the best advice that we can.”

Also on O’Malley’s panel are: Murray Gold, of Koskie Minsky LLP, a law and pension consulting firm; Uros Karadzic, partner at Ernst and Young; and Paul Martin, a controller with the New Brunswick government and former partner at accounting giant Grant Thornton LLP.

Without the pension surplus last year’s deficit was $5 billion, not the $3.5 billion that Queen’s Park had calculated.