Pension360

A recent study performed by researchers at Standford University revealed that California’s pension debt is markedly higher than once thought. The researchers calculated the deficit using two different sets of data, and came up with equally staggering amount.

The Sacramento Bee has more on the research:

California’s state and local governments face billions of dollars in debt – the official term is “unfunded liabilities” – for employee pensions not now covered by pension fund assets.

But how many billions?

It could be about $300 billion, according to new calculations by Stanford University researchers, but that assumes that projections of future investment earnings used by pension trust funds, around 7.5 percent a year, are accurate.

Or the debt could be three-plus times as much, close to $1 trillion, if the earnings assumptions track federal treasury notes, according to Pension Tracker, a research project headed by former Democratic Assemblyman Joe Nation.

If nothing else, the newly released Pension Tracker data demonstrate that an earnings assumption – the “discount rate” – is the most important factor in judging whether pension debt can be reasonably managed, or a crisis that could drive government agencies into insolvency.

Three cities have been forced into bankruptcy, largely due to soaring pension costs, and others are feeling the pinch as costs rise.

The tendency among California politicians, both state and local, is to acknowledge that there is debt, but accept the optimistic earnings

[…]

If, in fact, California’s pension debt is closer to $1 trillion than $200 billion, the real-world impact on taxpayers and other public spending will be massive and unsustainable.

But, one might wonder, how does California compare to other states? That’s also covered in the research. It reveals that on the official “actuarial” basis, California’s pension debt is the ninth highest at about $5,100 per Californian, but using the lower discount rate tied to treasury notes, the “market” basis, it’s fourth highest at $25,325 per capita.

For more about where California’s debt stands, read the full article here.

 

 

 

Reporter Ed Mendel covered the California Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

A city of San Jose request to repeal a pension reform approved by voters in 2012 was granted by a superior court in March, allowing a more generous plan negotiated with unions to attract police to a long-depleted force now working mandatory overtime.

Superior Court Judge Beth McGowen ruled that Measure B, approved by 69 percent of voters, is invalid because the city council resolution that placed the measure on the ballot is “null and void due to a procedural defect in bargaining.”

Then last week at the request of opponents, who want voter approval of any changes in Measure B, an appeals court put the lower court action on hold, pending a review of arguments in the case.

The intervention was filed by Pete Constant, a former San Jose police officer and city councilman, and the Silicon Valley Taxpayers Association, backed by Charles Munger Jr., a wealthy Republican campaign donor.

“I and Charles have committed to not giving up until we have exhausted every option,” Constant said in an interview before the 6th District Court of Appeal granted a temporary stay of McGowen’s ruling.

San Jose is another example of how the need to be competitive in the job market for police is an obstacle to — or safeguard against, depending on your view — cost-cutting pension reform. (See previous post: “Why bankrupt San Bernardino didn’t cut pensions.”)

In the view of some critics, a CalPERS-sponsored bill, SB 400 in 1999, gave the Highway Patrol a major pension increase that became the standard for local police and firefighters and a major factor in “unsustainable” pension costs.

The battle over the San Jose reform has been heated. The police union president at the time, Jim Unland, reportedly urged a class of police recruits to quit to aid the campaign against Measure B advanced by the mayor then, Chuck Reed.

A key part of the measure would have given current workers the option of paying more to continue earning the same pension (up to 16 percent of pay) or earn a smaller pension for future work.

A superior court upheld most of Measure B, but overturned the current worker option as a violation of “vested rights.” Under state court decisions known as the “California rule,” the pension offered at hire can’t be cut unless offset by a new benefit.

So, most pension reforms are limited to new hires. But the watchdog Little Hoover Commission and others argue that to control costs, governments need the ability, like private-sector pensions, to cut pensions earned in the future by current workers.

Whether San Jose would appeal the Measure B “vested rights” ruling and get a high court review of the “California rule” decisions, a key one in 1955, seemed to be an issue in the race to succeed the termed-out Reed as mayor in November 2014.

Local, state and national public employee unions reportedly spent $800,000 to defeat Sam Liccardo, a councilman and Reed ally, warning that pension cuts were causing the city to lose police officers, endangering public safety.

Liccardo narrowly defeated a county supervisor, Dave Cortese, who advocated settling union lawsuits against Measure B. Last August, Mayor Liccardo announced a settlement with police and fire unions, followed in December by other unions.

The settlement of nine lawsuits included dropping an appeal of the “vested rights” ruling. The agreement expected to save the city $3 billion over 30 years was endorsed by Reed.

Liccardo and Reed said in a San Mercury News article that pursuing the attempt to cut the cost of pensions earned by current workers in the future would be a “long and perilous” road that could jeopardize savings and cause longtime employees to resign.

Last month, the San Jose city manager, Norberto Duenas, said in a court filing that “Measure B, though well-intended, had negative consequences for the City,” including recruitment and retention of police resulting in a recent mandatory overtime plan.

“The settlement framework negotiated by the parties in July is a key component to the City’s attempt to stabilize hiring and retention in the Police Department and delays in its implementation will jeopardize our ability to recruit and retain police officers,” Duenas said.

The police force lost several hundred members in the budget crunch that led to Measure B, and losses have continued since then. Last week, said the city, the number of “actual street ready sworn” was 894 and “actual full duty sworn” 827.

A recent police academy graduated nine, and the current academy has seven. So far this year, there have been 10 resignations and 15 retirements. Under mandatory overtime, officers that have worked a full10-hour shift are held over into the next shift.

In the move opposed by Constant and others, the city used a “quo warranto” court process to repeal Measure B based on a suit filed by the police union in April 2013, which alleged that defective bargaining on the measure violated state law.

The city and the police and firefighter unions agreed they reached impasse on Oct. 31, 2011, after five different city proposals. When mediation in November failed, the city made two more proposals, placing the last one on the ballot without negotiating.

“Continued modification of the proposed ballot language after impasse — including concessions made by the City — created a further obligation to meet and confer before placing Measure B on the ballot,” Judge McGowen said in her ruling.

Similar rulings that the city failed to bargain in good faith have been made by the state Public Employment Relations Board. If the settlement is completed as envisioned, the unions are expected to withdraw their complaints to the powerful board.

Though not asking voters to repeal Measure B or approve its replacement, the city does plan to put a measure on the November to protect taxpayers: no retirement benefit increase without voter approval, no retroactive benefit increases, and actuarial safeguards.

The ballot measure for November was posted on the city website last week after bargaining with unions was completed. One provision would “approve the continuation of current pension benefits for employees.”

That’s aimed at a statewide initiative proposed by Reed and others that could give new hires a 401(k)-style plan unless voters approve a pension. The group dropped a drive to put the initiative on the ballot this year, but plans to try again in 2018.

Meanwhile, to advocate for fair and sustainable public pensions, Reed, Utah pension reformer Dan Liljenquist, former New York Lt. Gov. Richard Ravitch and others have formed a new national group,Retirement Security Initiative.

Constant, an ally of Reed and Liccardo while on the San Jose city council, has been working with a Reason Foundation project that helped develop a pension reform on the Arizona state ballot Tuesday, Proposition 124.

Last week, Constant presented a Reason analysis of Brea’s CalPERS pensions to a group in the Orange County city, Brea First. He also has talked to California legislators about forming a pension stakeholder group like one that led to broad support of the Arizona measure, including police and firefighter groups.

“We will see if that happens,” Constant said. “Time will tell. California is bigger than an aircraft carrier, and it’s going to take a long time to turn around.”

 

Henrique Meirelles, Brazil’s new finance minister, explained his intention to overhaul the country’s pension system in order to combat the national deficit. Meirelles stepped into his office after the suspension and possible impeachment of President Dilma Rousseff.

Nasdaq has more on the topic:

Brazil’s new finance minister, Henrique Meirelles, said Friday the government needs to reduce spending and overhaul the country’s pension system and labor laws.

Mr. Meirelles said during a news conference that he will name his economic team and the heads of the central bank and state-controlled banks on Monday, and will reveal economic measures as they are ready. He added that the heads of the state banks won’t be chosen based on their political affiliation.

“We need to have concrete measures to turn things around,” he said. “Even if those measures won’t have immediate effects, they will have an effect in the future.”

Mr. Meirelles was appointed finance minister on Thursday by acting President Michel Temer, who is sitting in for President Dilma Rousseff.

Ms. Rousseff was temporarily suspended on Thursday to face an impeachment trial in the Senate. She accused Mr. Temer of plotting her dismissal.

[…]

The minister will also be charged with fixing the country’s broke public pension system. For decades Brazilians have been able to retire after up to 35 years of work, resulting in a relatively low retirement age, now averaging 54 years.

Mr. Meirelles said Brazil should move toward a minimum retirement age, without giving specifics. Pension payments amount to almost half of the national budget and fixing the system is key to restoring confidence in Brazil’s future, he said.

If Rousseff is impeached, Brazil’s voters are expected to allow Meirelles to enact the reforms he proposes with little resistance.

Chicago Public Schools are facing a major deficit after relying on Springfield to help pay the $676 million payment for teacher pensions due in June. With little word back from the capital, CPS is struggling to function under added financial stress.

The Chicago Sun-Times has more on the subject:

Summer school for 17,450 Chicago Public School students could be scaled back dramatically if the Illinois General Assembly adjourns its spring session without providing pension relief to the nearly bankrupt school system.

The doomsday plan may also require central office administrators and network staffers who normally work through the month of July to take pay cuts or unpaid days off.

“Because of the budget crisis driven by the state’s discriminatory funding, CPS is being forced to seriously contemplate difficult reductions to summer school,” CPS spokeswoman Emily Bittner was quoted as saying in an emailed statement in response to questions from the Chicago Sun-Times.

[…]

Mayor Rahm Emanuel signed off on a school budget that assumes $480 million in pension help from Springfield. CPS has managed to make it through the school year, only after borrowing $775 million at sky-high interest rates and making several rounds of painful budget cuts.

A school funding bill approved by the state Senate this week would provide roughly $375 million in additional help for CPS.

But, the bill Downstate Democratic state Sen. Andy Manar claims will “attack poverty in the classroom” faces an uncertain future, both in the House and, more importantly, with Republican Gov. Bruce Rauner.

At issue is the $676 million payment to the Chicago Teachers Pension Fund due on June 30.

CPS has no choice but to make that payment in full, whether or not Springfield rides to the rescue.

To do otherwise would probably mean losing future access to the credit markets and slipping dangerously further into junk bond status — possibly dragging the city’s bond rating down with it.

But, after making that payment in full, CPS will have just $24 million left in the bank. That’s enough to cover just 1.5 days of payroll.

Since property tax revenues won’t start rolling in until early to mid-August, that means CPS would essentially be forced to operate “bone-dry” through the month of July.

That’s why summer school and summer staffing are being targeted.

Furlough days and pay cuts could also be in store for the roughly 1,000 central and network office staffers who normally work through the month of July.

CPS’s pension payment is due by June 30.

 

A study discovered that CalPERS pays slightly below other similar companies in fees. However, the study does not take into account data on private equity. CalPERS was highly criticized last year for its lack of private equity performance fees.

Pensions & Investments discusses the study further:

A CalPERS-commissioned study from CEM Benchmarking shows the $293.6 billion pension fund paid $1.18 billion in fees or 41.1 basis points in calendar year 2014, slightly below its peer group median of 43.2 basis points.

However, the study does not include performance fees for private equity, real estate, infrastructure and natural resource investments. An executive summary of the study was included in the agenda materials for the retirement system’s investment committee meeting scheduled for May 16.

CalPERS’ lack of data on private equity performance fees became a major controversy last year. In June 2015, pension fund officials disclosed it could not account for how much it paid in performance fees for the asset class even though it was CalPERS’ largest external management cost.

In late November, after implementing a new reporting system, the California Public Employees’ Retirement System, Sacramento, reported it paid $700 million in performance fees or carried interest to private equity firms in the 12-month fiscal year ended June 30, 2015.

CEM said in the study that CalPERS was able to achieve overall a slightly lower cost than its peers in 2014 from its equity, fixed income and now-eliminated hedge fund portfolio because of less use of funds of funds and external active management and fewer portfolio overlays. CEM said CalPERS also paid less than its peers in terms of external management and custody fees, and internal management costs. The study did take into account base fees for alternative investments.

CEM says it compared CalPERS to a peer group of 14 global asset owners with assets ranging from $117 billion to $844 billion. The median size of the plans in the peer group was $184 billion.

CalPERS board members are pushing for an amendment to the California Assembly Bill that would require California pension funds to release information on fees charged by annual investment managers. For more on the bill, read the full article here.

 

A recent legislation passed by New Jersey’s Senate bans pension companies from investing with any business currently boycotting Israel. The bill passed with nearly complete support from the Senate. NJ officials hope the ban will send a message of support to Israel.

NJ.com discusses the topic further:

The state Senate threw nearly full support Monday behind a bill requiring New Jersey’s public worker pension fund to divest from companies that boycott Israeli goods and businesses.

The bill (S1923) pushing back against businesses participating in the Palestinian-led “Boycott, Divestment and Sanctions” movement against Israel was approved 39-0. The Assembly still needs to take action on the bill.

State Sen. Jim Beach (D-Camden), a sponsor, said on the Senate floor Monday that “I think this bill sends a very clear message to our friends in Israel that New Jersey has your back.”

Under that bill, the state Division of Investments would be barred from investing public workers’ $68.6 billion pension fund in these companies and dump any of these existing holdings within 18 months.

It makes exceptions for companies that provide “humanitarian aid to the Palestinian people through either a governmental or nongovernmental organization unless it is also engaging in prohibited boycotts.”

[…]

“New Jersey cannot support such biased practices as those of the BDS against our sister state,” state Senate Majority Leader Loretta Weinberg (D-Bergen) said in a statement. “Israel has long been a vibrant trading partner, ally and friend with our state, and making sure that we are not investing in any company that seeks to hurt the interests of Israel or its people through boycotts, divestments and sanctions will send a clear message that we stand against this kind of veiled discrimination.”

The bill joins existing New Jersey motions that prohibit pension funds from investing in business that are connected to Sudan, Northern Ireland, or Iran.

 

The 6^th District Court of Appeal prevented San Jose Mayor Sam Liccardo from repealing Measure B. Although previous rulings allowed for Liccardo to repeal the measure, the appeal stops all proceedings and requires that the case be reconsidered.

Mercury News discusses the topic further:

In a victory for former Councilman Pete Constant and a blow to his one-time ally, Mayor Sam Liccardo, an appellate court on Wednesday put the brakes on the city from repealing Measure B — the pension reform initiative voters overwhelmingly approved in 2012.

“I’m happy the court agreed that the council cannot move forward in such a rushed manner — trying to push things through before the court process was completed,” Constant said Wednesday.

Constant, along with the Silicon Valley Taxpayers Association and businessman Charles Munger Jr., have issued legal challenges to the city’s quest to nullify Measure B through a court proceeding.

Constant, who championed Measure B along with Liccardo, said any changes to the initiative must go back out to voters. The city last year reached settlements during closed-door meetings with employee unions who filed numerous lawsuits against the measure, saying it was an assault on their rights.

Liccardo and the current City Council pushed to replace Measure B with the settlement language — but without full consent from voters who approved it.

“All we’ve asked for is that residents be given the right to vote on the settlement between the city and the unions,” Constant said. “We believe that right rests solely with the residents.”

Santa Clara County Superior Court Judge Beth McGowen didn’t agree. She issued two separate rulings, denying Constant’s plea and siding with the city in its attempt to wipe Measure B off the books.

Union leaders applauded the move, saying it allows them to begin rebuilding a workforce that was depleted from hundreds of employees resigning after pension reform.

Constant and his group appealed and the 6th District Court of Appeal on Wednesday granted a temporary stay in the case — stopping all proceedings to reconsider the case.

City and union leaders have until May 23 to submit their comments on the case.

Current estimates suggest that companies are taking money away from hedge funds at the highest rate since the recession. Many blame the industry’s high fees for their decision, but those within the industry say that the bad reputation that surrounds hedge funds may be the driving factor. Despite this trend, public pensions are staying firmly rooted in hedge funds.

Reuters elaborates on the issue:

Recent moves by a few large institutional investors were seen as the beginning of a mass exodus. In 2014, the $300 billion California Public Employees’ Retirement System said it was getting out of most hedge funds. Then, this February, the $15 billion Illinois State Board of Investment said it would reduce its target allocation from 10 percent to just 3 percent. In April, the $51 billion New York City Employees Retirement System (NYCERS) decided to exit hedge funds entirely.

Henry Garrido, a worker union leader and NYCERS trustee, cited the industry’s high fees and poor performance in scoring a near-unanimous vote in favor of his proposal to axe about $1.4 billion from hedge funds including Brevan Howard and D.E. Shaw Group, about 3 percent of its portfolio.

“I think it’s insane,” Garrido said in a pension trustee meeting this year, “that we keep pouring money into hedge funds.”

Data, however, suggest that U.S. public pensions are staying put. The number of public pensions that use hedge funds has steadily increased to 282 in 2016 from 234 in 2010, data from research firm Preqin show. The average percentage of pension portfolios in hedge funds has also rose to nearly 10 percent.

Steve Yoakum, executive director of the Public School & Education Employee Retirement Systems of Missouri, said his pensions are sticking with hedge funds despite concerns about high fees and low returns.

“We are parking our money there because we don’t like the alternatives,” Yoakum told Reuters, adding “They are doing what they were hired to do.”

[…]

Mark McCombe, global head of BlackRock’s institutional client business, said pensions will continue to look to hedge funds to help them achieve their financial goals.

“These are very individual decisions,” McCombe said of the CalPERS and NYCERS pull outs. “This is not a systemic move away from hedge funds.”

Many of the companies that are pulling out of hedge funds maybe expecting a stock-like turn around on investment, and may be disappointed when that doesn’t happen. For more on the issue, read the full article here.

U.S. Treasury Secretary Jack Lew indicated the possibility for pension cuts to help diminish Puerto Rico’s debt crisis during a visit to the island earlier this month. Puerto Rico has defaulted hundreds of millions in bonds in recent months due to the financial crisis, and officials agree that a solution must be found to stop the increasing debt. The possibility of pension cuts as a solution is currently hotly debated.

USA Today writes more on the topic:

“That doesn’t mean that all debt is equal. We’ve never said that pensions should be made senior to all debt,” [Lew] said. “But there does have to be a balancing — and at the end of the day you’re going to need to have a functioning economy.”

Puerto Rico — a U.S. territory with 3.5 million residents who are born as American citizens — has accumulated more than $70 billion in bond debt and more than $40 billion in unfunded pension liabilities, according to Treasury’s recent estimate.

[…]

A fiscal oversight board should be formed and given “the discretion to make the trade-off decisions,” Lew said.

But, he added, “the efforts to try to protect any of the interests to the exclusion of all of the others are problematic.”

[…]

Some Republicans have pushed for pension adjustments as part of a restructuring package being considered by Congress, but many Democrats have largely opposed the concept, pushing instead for protections for union interests.

But Lew did not rule out reductions.

“There’s going to have to be a balancing of the interest of creditors and those who get retirement benefits and other bills that the commonwealth has to pay,” Lew said. “If the test is, creditors get paid 100% before anyone else gets paid anything, there’s not going to be a functioning Puerto Rico.”

Puerto Rico Governor Alejandro Garcia Padilla recently declined the concept of pension cuts for the sake of combating debt. He stated that the option would be unconstitutional.

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Keith Ambachtsheer and Edward Waitzer wrote an op-ed for the Globe and Mail, Ontario’s pension plan presents a game-changing opportunity:

There is evidence that an element of employer compulsion is required to ensure that Canada’s private-sector workers are covered by a functional workplace pension plan. That reality should be tempered by careful thought about strategies to minimize the potential negative impacts of compulsion.

One strategy is to encourage healthy private-sector competition through the “comparable plan” principle that Ontario has adopted in its Ontario Retirement Pension Plan (ORPP) initiative. Competition could foster much-needed innovation in workplace pension design and management in Canada, and is an opportunity for the financial sector to assert its social utility.

A 1994 World Bank study suggested that the ideal national retirement income system has three pillars: a universal pillar providing a basic pension to all, a workplace-based pillar providing supplementary retirement income and an individualized pillar permitting people to create their own “add-on” piece. This model flags a serious Canadian problem. More than three-quarters of Canada’s private-sector work force has no access to a well-designed, cost-effective workplace plan. This means many are undersaving and thus will not achieve their retirement income aspirations. Others will fall short because they are saving inefficiently through high-cost investment vehicles.

These consequences impose significant costs on future generations. One solution is to expand the Canada Pension Plan/Quebec Pension Plan or another provincial version. Specifically, Ontario’s ORPP initiative was announced in 2014 and the ORPP Act was passed in 2015. As an alternative solution, we proposed in 2011 requiring employers to enroll their employees into a qualifying pooled registered pension plan (PRPP) offered by an approved financial institution.

The ORPP Act contemplated these solutions by requiring Ontario employers to enroll workers into the ORPP or offer a “comparable plan.” Current wording leaves room for interpretation of what that is. This window creates a private-sector opportunity for competition with the ORPP. It could also pre-empt the need for future CPP/QPP expansion if other provinces also require “comparable plans.”

What should a 21st-century workplace pension plan look like? It has (a) the ability to compound returns over long investment periods to make a decent pension affordable, (b) the ability to provide lifetime payment assurance and (c) a transition mechanism that shifts plan participant exposure from return compounding emphasis to payment safety emphasis as they age.To date, very few countries have been able to offer access to this kind of workplace plan due to lack of innovation and outmoded legislation and regulation.

Fortunately, there is a global effort under way to address these barriers. Northern European countries, Britain and Australia have already made workplace pension-plan participation mandatory. Ontario leads the way in North America, but Saskatchewan has been offering its Saskatchewan Pension Plan since 1986. (The SPP offers most of the 21st-century plan features set out above, but because participation has been voluntary, it lacks the scale to be truly cost effective.)

Ontario’s commitment to the ORPP can be a game-changer for Canada. It creates the opportunity for financial institutions to offer SPP-type plans from coast to coast, and even beyond Canada’s borders. Let’s call them PRPPs. Here’s how they could compete with the ORPP:

The target pension benefit: A PRPP would be comparable to the ORPP’s target benefit at the ORPP’s 3.8-per-cent contribution rate. However, with the PRPP, the employer would have the option of choosing a higher target benefit with a higher contribution rate.

Risk mitigation: The PRPP design recognizes that the major risk facing workers is lack-of-return compounding risk, and the major risk facing retirees is payment-for-life uncertainty. This leads logically to its two-instrument approach. We understand that the ORPP design will not distinguish between the differing risk preferences of workers and retirees.

Wealth transfers: The PRPP design ensures that no systematic wealth transfers take place between current and future workers, retirees and taxpayers. To date, it is unclear how the ORPP will ensure this.

Open architecture: The PRPP will be able to accept already accumulated retirement savings and move them into the same return compounding-to-safety life-cycle process as will be used for new pension contributions. Our understanding is that the ORPP will not.

Surely employers and employees would benefit from the option of a PRPP with the features sketched out above.

A final thought. Leadership by policy makers and financial institutions can help demonstrate that regulation is about more than protecting consumers from deceptive products and practices. Rather, it is to ensure that society is well served and that consumers get “value for money” – a fair deal. This should encourage financial innovation (as a substitute for government market intervention) and a better articulation of public stewardship responsibilities throughout the financial services supply chain.

*** Keith Ambachtsheer is director emeritus of the International Centre for Pension Management at the Rotman School of Management, University of Toronto. Edward Waitzer holds the Jarislowsky Dimma Mooney Chair in Corporate Governance, is director of the Hennick Centre for Business Law at Osgoode Hall Law School and the Schulich School of Business, York University, and is a senior partner at Stikeman Elliott LLP.

This article is based on a KPA Advisory Services paper.

Keith Ambachtsheer and Edward Waitzer have written an interesting article but I have one big beef with it which I will come to shortly.

First, I agree with them, the Ontario Retirement Pension Plan (ORPP) is a game changer but not for the main reasons they cite. I think it’s a game changer because absent a push by all provinces to enhance the CPP once and for all, Ontario is right to introduce a new supplementary pension plan which can use the same successful model of other large Ontario plans to provide a supplementary pension to all Ontarians.

My biggest beef with this article is that it focuses too much on how the ORPP will encourage more private sector competition, neglecting to mention that when it comes to pensions, there is no private sector pension solution that can effectively compete with Canada’s Top Ten pensions.

Ambachtsheer and Walzer are both very smart, they know their stuff when it comes to pensions, but they missed a golden opportunity here to explain why the ORPP makes great long-term sense and why it will benefit the entire population and economy for years to come.

To be fair, they mention it en passant but then move right away to obsessively focus on how it will promote private competition. No it won’t, the ORPP will kill its private sector competitors over a very long period. Why? Because they won’t be able to do half the things the ORPP will be doing at a fraction of the cost. That is the honest truth and both Ambachtsheer and Waitzer know it.

Go back to read my comment on less bang for your CPP buck where I rip apart the latest study from the Fraser Institute to make the point why enhancing the CPP is the only real option to bolstering Canada’s retirement system.

Absent an enhanced CPP, it makes sense for Ontario to introduce a new supplementary pension plan, but not for the main reason cited by the authors above. We already have something in Canada that works, let’s build on the success of our large, well-governed defined-benefit plans and drop the notion (more like charade) that the private sector can effectively compete against them. It can’t and the sooner we realize this, the better off all Canadians will be.

You can watch a BNN clip of Ontario Finance Minister Charles Sousa discussing why the ORPP is an important initiative at the end of the Globe and Mail article here. Great discussion, listen to his comments.

Below, Ron Mock, CEO of Ontario Teachers’ Pension Plan, Canada’s largest single profession pension plan, talks about the fund’s investment strategy in a recent interview on CNBC.

As I stated in my comment when I went over Ontario Teachers’ 2015 results, there is one chart I really like in the Annual Report, one that exemplifies Teachers’ long-term performance (click on image):

When people ask me why I’m such a stickler for large, well-governed defined-benefit plans, I point out charts like the one above to make my case. If you’re looking for a solution to the global retirement crisis, this is it, right there in that chart.

Trust me, no PRPP can compete with OTPP or Canada’s Top Ten when it comes to producing great long-term returns on a cost efficient basis. The sooner we recognize this, the better off all Canadians will be.