Kenney sows confusion about public pensions

Premier’s incorrect assertions should concern Albertans, Bob Ascah writes.

• Edmonton Journal

• 21 Dec 2021

• Dr. Bob Ascah is the former director of the Institute for Public Economics at the University of Alberta and a former Treasury Board employee. His report is available at www.parklandinstitute.ca His blog is Abpolecon.ca

In response to a reporter’s question about my recently released Parkland Institute study on the Alberta Investment Management Corporation (AIMCO), Premier Jason Kenney misled Albertans about the government’s role in funding the pensions of teachers, nurses and other public employees.

All Albertans, whether taxpayers or beneficiaries of these pension plans, should care about how AIMCO performs. First, there are nearly half-a-million Albertans, retired or working, who contribute to, and receive from, these plans hundreds of millions of dollars annually. If one includes family members, the plans probably impact close to 1 million Albertans. With nearly $100 billion in assets in these pension funds, two-thirds of AIMCO’S funds are pension-plan members’ investments, not public money.

Second, all Albertans have a stake in the Heritage Fund, whose investment earnings are used to support public services. Unfortunately, last year Heritage Fund income fell dramatically due to an exotic, poorly executed investment strategy by AIMCO.

The premier asserted “that “broadly over the past decade they have performed as well or better than the average amongst comparable public pension fund managers.” Not true. The Parkland report showed that, when compared with four large provincial-based investment managers, AIMCO’S performance was certainly not better than most of its peers.

When compared against the Alberta Teachers’ Retirement Fund (ATRF), AIMCO’S performance was worse. Last May, ATRF reported to the Alberta Teachers’ Association that if AIMCO had managed ATRF funds the way they managed funds for other clients, over the past seven years the value in an Aimco-managed teachers’ fund would have been $1.3 billion lower.

Premier Kenney then went on to state that public pensions “are effectively indemnified by the Crown.” If this were true, public-sector workers across Alberta should be celebrating this early Christmas present from Kenney. According to the premier, if pension funds underperform and they do not have enough to pay pension benefits in the future, “the taxpayer has to cover the difference.” Unfortunately, this is not true. Governing legislation and regulations over the past three decades have been developed to remove the government backstop. Finance Minister Travis Toews surely was surprised by the premier’s expansive and novel interpretation of Alberta public-sector pension law.

Kenney also claimed that by forcing the ATRF to invest through AIMCO, there would be $50 million in administrative savings. This estimate is fanciful for a couple reasons. First, as investment managers and pension experts know, it is not cost savings that matter most, it is net investment income after costs. If costs rise by

$10 million but investment income increases by $30 million, the members benefit. Second, the ATRF’S total administrative expenses in 2020 were $40 million, with the bulk of other expenses going to external investment management fees. It appears the premier was relying on an analysis by AIMCO that they could manage costs down by 25 basis points — a number that seemed to be accepted without any questions. It is doubtful if the government will track this number and report the assumed savings to the public.

All this muddling around should concern Albertans because the premier fundamentally misunderstands the pension bargain with government workers. On top of clarifying that he has not given public pension members a blank cheque in the form of a new government indemnity, he also needs to work with the owners of the pension funds, the workers who are investing in them, to actually fix the governance issues at AIMCO.

Public pensions are too important to be left to the whims of politicians. The premier and Finance Minister Toews need to quickly clear up the confusion about public pensions and remove the monopoly control they have given AIMCO over so many Albertans’ pensions.