Dodge Defends Defined Benefit Pension Plans

And why would Bank of Canada Governor David Dodge say such nice things about Defined Benefit Pension Plans? After years of the right wing attacking these plans in favour of defined contribution plans; RRSP's. Because they are the real source of capital investment for P3's

Because they generate more capital, faster, and thus can be used for investment purposes. In other words because OMERS, Ontario Teachers Pension Fund, CPP, the new Alberta AIM fund, all of them are now major contributors to the economy as investment funds, which are creating a new form of P3; public pension partnerships.

Once these public sector pension funds were freed from state restrictions in investing they have created a trillion dollar investment market. Further this has allowed the state to benefit by not paying its share. Thus giving the government of Canada more surpluses, along with their looting of EI.

While the private sector imitated the Government in failing to invest their required amount in their defined pension funds, leading them to funding crisis much as the Alberta Government faced a decade ago with its public sector pension funds. Which it attempted to privatize (put it under self governance) but once they discovered that allowing them to invest in the market made them profitable and they paid off their debt they gave that idea up. Today a decade later they finally discover what OMERS and the Ontario Teachers Fund have been so successful doing, becoming private venture capital funds, and created the new AIM Fund.

In the private sector we have seen the same Peter Pocklington style use of workers pension funds to bail out the corporation. Pocklington purchased Gainers in Edmonton to access not only the business capital but the unionized workers pension funds to bail out his other businesses, like the Oilers, in a barely legal ponzi scheme that saw him bankrupt both and leave the city in disgrace.

When pension fund bail outs have been successful in the private sector it has been because the company was Canadian, unionized, and formerly a crown corporation like Air Canada.

Where they have failed has been in the U.S. such as in the case of Delphi, where the unionized workers pension funds are looted when the company uses their failure to invest in them as an excuse to declare bankruptcy and hand over their pension responsibilities to the U.S. government in a perverse appeal to state capitalism to bail them out.

This is the reason that both the Canadian and American governments want workers to work longer, so as to have more liquidity in the CPP in Canada and Social Security in the U.S. Conservatives Want You To Work Longer

I am reproducing these articles because they are the most informative and because they will eventually disappear behind locked subscription walls.

And while Dodge says nice things about Defined Benefit Plans he also wants to deregulate them, including allowing employers to retain their surpluses, which shortchanges worker, something a former Liberal PM benefited from.

Making private pensions stronger

Dodge says defined-benefit plans way to go, with changes to improve them

By JULIAN BELTRAME The Canadian Press

OTTAWA— Bank of Canada governor David Dodge is calling for changes to Canada’s private pension plan system, and a swing back to defined-benefit plans, to ensure it produces the best results for employees and the economy.

Private plans have been under pressure in Canada for several years, with many company pensions running huge shortfalls because of future liabilities.

A survey of chief financial officers, released Thursday by the Conference Board of Canada, found that two-thirds believe there is still a pension crisis in Canada. But the number who feel the crisis will be long-lasting has declined to 48 per cent from 61 per cent last year, the survey of 141 corporate executives found.

In a speech Thursday at a Toronto pension summit, Dodge proposed six changes he said would give employers more incentives to offer workers the most desirable form of pension — those that pay predictable, defined benefits on retirement.

Private pensions are important both to the employee who receives them and the employer hoping to attract and retain the best available staff, he said. They are also important for the economy as a whole, he added.

"As a central banker, I know that a sound pension system is important from the perspective of economic and financial market efficiency," Dodge said.

But while he mostly praised Canada’s legal and regulatory framework governing private pensions, Dodge said there are several shortcomings that should be addressed to strengthen the system.

Those shortcomings are increasing the risks to employees and preventing the plans from functioning at maximum capacity, he said.

As a result, Dodge said employers "have been scaling back or restricting new entries into these types of plans, largely because they do not have the right incentives to maintain and operate defined-benefit plans."

Many have been converting to defined-contribution plans instead as they are usually easier to budget for.

One drawback to the current system is that when pension plans run a surplus, federal and provincial laws increasingly have given employees the right to those surpluses even though it is the employer that bears the risk of default.

He added that tax regulations perversely discourage pension managers from building a surplus above 10 per cent, even though such surpluses are desirable and useful in offsetting periods of deficits.

Dodge said many employees miss out on the opportunity to be protected by private pension plans because they work for companies that are too small to afford them.

"But risks can be mitigated by sponsors forming multi-employer plans, thus pooling risks across a number of plan sponsors," he argued.

"If structures such as large multi-employer pension plans could be created, this would help them to pool both costs and risks, making it easier for smaller employers to sponsor defined-benefit plans."

He noted that municipalities in Ontario have done exactly that in forming OMERS, the Ontario Municipal Employees Retirement System, so there should be away to explore that avenue for private-sector employers.

Among other concerns noted by the central banker were increasing flexibility to deal with actuarial deficits and making sure accounting rules don’t introduce unnecessary volatility to employers’ balance sheets.

"Ultimately, Canada can have a better-managed system that is good for members, good for employers, good for the economy and good for Canadian society," he said.

Bank of Canada calls for private pension plan reforms

Governor Dodge wants clarity. Suggests giving plan sponsors more flexibility to cover pension fund shortfalls

ERIC BEAUCHESNE,

CanWest News Service

Published: Friday, May 11, 2007

Bank of Canada governor David Dodge is calling for widespread reforms to deal with the country's private pension fund crisis, including the elimination of tax penalties and other rules that discourage employers from building up pension fund surpluses, as well as a greater awareness among employees of the risks and costs of enriching their retirement benefits.

"First, we should reduce the disincentives for sponsors to run actuarial surpluses in good times that will offset actuarial deficits in other periods," Dodge told a pension conference in Toronto yesterday. "More clarity regarding legal ownership of surpluses is needed, so that the sponsor that owns the risks also owns the benefits from taking those risks."

Dodge focused on measures that would make defined benefit plans - seen as superior to defined contribution plans but which employers have been abandoning as too risky - more viable.

Generally, in defined benefit plans, employers guarantee employees a pre-set level of benefits, while in defined contribution plans the employees bear the risk as the level of their benefits is based on the investment returns the plan earns.

"An effective defined benefit pension system is a tremendous asset for individuals, for employers and for our society as a whole," Dodge said. "Putting these plans on a sustainable footing involves strengthening the legal, regulatory, accounting, actuarial and economic frameworks."

Dodge suggested that defined benefit fund surpluses should belong to employers because they face the risk of having to cover any shortfall, and that existing tax penalties on fund surpluses should be eased.

"Given the significance of our pension system, policymakers in Canada need to keep working on improving its operation," Dodge told the pension conference.

His comments follow reports that the worst of the recent pension crisis has eased, thanks to healthy returns in the stock market and extra payments by employers to cover pension fund shortfalls.

Dodge suggested giving plan sponsors more flexibility to cover pension fund shortfalls, and letting smaller companies pool costs and risks to form multi-employer defined benefit pension plans.

The governor also called for greater sharing between employers and employees of the costs to pension funds from increases in longevity, and that the costs and risks of any enriching of plan benefits be made clear to both corporate shareholders and workers.

"These changes would give sponsors the appropriate degree of flexibility needed to manage risk effectively," Dodge said. "Ultimately, Canada can have a better-managed pension system that is good for members, good for employers, good for the economy and good for Canadian society."

While Dodge noted that the benefits of pension plans to workers are obvious, he said they also are good for employers and society.

© The Gazette (Montreal) 2007

FULL TEXT-Speech by Bank of Canada Governor

TORONTO, May 10 (Reuters) - The following is the prepared text of a speech by Bank of Canada Governor David Dodge to be delivered on Thursday to the Conference Board of Canada's 2007 Pensions Summit.

A Sound Pension System - Handling Risk Appropriately Good afternoon. I'm happy to be here to talk about the importance of Canada's pension system. It goes without saying that a sound system of private pensions is important from the perspective of pensioners who rely on a given plan for their retirement income. For firms, a pension plan can help to attract and retain staff, and so the business community also counts on a sound pension system. And as a central banker, I know that a sound pension system is important from the perspective of economic and financial market efficiency. Given the significance of our pension system, policy-makers in Canada need to keep working on improving its operation. Ultimately, it is crucial for all Canadians that our pension system function as well as possible. But what is it that makes a system of private pensions function well, or not? As I see it, a key to answering this question is understanding how pension plans deal with risk, in all of its many forms. So today, I want to spend some time discussing private pensions and risk, and suggest what needs to be done to make sure that those who have to bear risk also have the right incentives to deal with it in the most appropriate manner. I will focus on who is best placed to bear risk, and on how risk management can be better supported. Risks and Challenges Let me start with a fundamental question: Why do people save for their old age? Essentially, people save during their working years so they can retire at some point and not suffer a precipitous drop in income and living standards. Economists might put it somewhat less elegantly, saying that people save in order to smooth their lifetime consumption. In the absence of any kind of pension system, individuals, businesses, and society as a whole would all face a number of challenges and risks. I want to spend a few minutes talking about the challenges and risks from these three perspectives, beginning with individuals. First, individuals without a pension plan would have their personal savings as their only source of retirement income, aside from income from the publicly funded Canada Pension Plan/Quebec Pension Plan and the Old Age Security/Guaranteed Income Supplement. And so, individuals would naturally be exceedingly cautious with their investments, particularly as they approached retirement age. In short, individuals without pensions would likely be too risk-averse with their savings to generate a sufficient rate of investment return. Second, individuals can recognize that they lack the expertise to handle their investments in the most effective way, and so will try to acquire this expertise. This could come by way of an investment adviser, or by investing their savings in managed, diversified retail investment vehicles such as mutual funds. The challenge posed by this approach is that it can be costly, since individuals outside a pension plan have to purchase investment advice and ongoing funds management retail, not wholesale. Third, individuals without a pension plan face market risk in a couple of ways. Market conditions could be such that at the time of retirement, the value of their assets could be abnormally low. Or interest rates could be abnormally low at the time of retirement. In either case, the person would need to spend a much greater amount to purchase an annuity or other guaranteed stream of income compared with a period when market conditions were more favourable. The fourth point is related to the third. Sellers of annuities have to deal with the risk that those individuals who expect to live much longer than actuarial tables would suggest are the ones who buy annuities. To deal with this adverse selection problem, sellers compensate for the risk by charging significantly more for the annuity. In other words, the cost of an annuity is much greater for an individual than it is for members of a group. Both of these last two points demonstrate that without a pension system, individuals would need significantly higher levels of savings to ensure adequate funding for their retirement. And all of these points I raised demonstrate that pensions generate enormous benefits by making it much simpler for individuals to successfully save for retirement. But while the benefits of pension plans are obvious for individuals, let's not lose sight of the benefits for businesses and for society as a whole. From the perspective of business, pension plans are typically thought of as a recruitment and retention tool. But historically, pensions were also the way that good employers helped workers to save so that they could avoid penury in old age. And with a pension plan, older workers had the ability to retire, and thus did not need to keep working well beyond the point of their greatest productivity. As for society as a whole, pensions provide a couple of important benefits. First, no society wants to see large numbers of its senior citizens relying entirely on government transfers, although there is fairly universal agreement across most countries that it is desirable to have some degree of public income support for people in their old age. Beyond that, however, a well-functioning pension system is an important source of the long-term risk capital that is essential to finance growth. Mitigating Risks: Defined-Contribution Plans Most of the challenges and risks I've mentioned can be mitigated, to a greater or lesser extent, through the pooling effect that a pension plan provides. Of course, different kinds of pension plans deal with risks in different ways. First, let me briefly discuss defined-contribution plans and the way they deal with risks. A defined-contribution plan mitigates, at least partially, many of the challenges and risks I mentioned for individuals. For example, the costs of funds management and investment advice are pooled. Further, pooling helps to mitigate the risk that individuals will not have saved enough to purchase an appropriate annuity.

Most execs see a pension crisis

Fewer fear it will be long lasting

ERIC BEAUCHESNE, CanWest News Service

Published: Thursday, May 10, 2007

Nearly two-thirds of senior executives believe Canada still has a corporate pension funding crisis but a lot fewer fear it will be long-lasting, according to a survey to be released Thursday at a pension conference in Toronto.

The percentage of chief financial officers who feel the pension crisis will be long-lasting has slipped below half to 48 per cent this year from 61 per cent last year, and the proportion of senior human resource executives who see it as long-lasting has fallen to 40 per cent from 67 per cent, the survey found.

The results are being released at a Conference Board of Canada pensions summit in Toronto at which Bank of Canada governor David Dodge will give his perspective of how to manage pension risks.

"Compared to one year ago, the sense of crisis appears to be abating, but chief financial officers are still concerned about both the volatility and the current level of pension expense," said Gilles Rheaume, the board's vice-president public policy. "In an environment of labour shortages, pensions ... are considered a very valuable recruitment and retention tool." The lower level of concern likely reflects better investment returns and shrinking funding deficits, added Ian Markham, a pension specialist with Watson Wyatt, which conducted the survey of 141 employers.

However, he noted that employers are still pursuing reforms in both pension fund investment strategies and the design of pension plans.

Forty-one per cent of employers with a defined benefit plan, seen as the most attractive plan for attracting and retaining employees, indicated that they had made some reforms over the last two years or were planning to do so over the coming year.

Among private sector employers, the most common reform has been to convert to a defined contribution plan, under which the level of pension payments is determined by investment returns, from a defined benefit plan, under which an employer must make up any shortfall in a fund to cover the cost of paying an agreed upon level of benefits.

That's despite the fact that employers strongly agree that a defined benefit plan is more attractive when trying to recruit or keep employees, the report noted.

Firms jettison defined-benefit pension plans

Shift means many will work longer

May 10, 2007 04:30 AM

James Daw

Traditional pensions continue to slip from workers' grasps.

A third of the 45 public companies polled in a new survey will soon have stripped benefit guarantees out of pension entitlements that new and existing employees will earn in future.

In the face of a new era of low investment returns and rising obligations, more pension providers are aiming to limit contributions to a fixed percentage of pay.

Affected employees could face having to work longer – if their health and skills allow – or deal with a lower standard of living in retirement, a senior actuary warns.

The trend that began in the early 1990s is gaining momentum, just as an Ontario commission searches for a survival and expansion plan for pension plans that have defined benefits.

Ian Markham, an adviser to the Ontario Expert Commission on Pensions, says the number of workers who have lost pensions with defined benefits for each year of service may be more than official figures recognize.

Statistics Canada estimates about 83 per cent of the two million pension-plan members in Ontario still have defined benefits.

Most of the members are in the public sector.

But the agency has a great deal of difficulty dealing with private-sector employers that will pay benefits based on service up to a certain year, but in future will make a fixed level of contributions for each dollar earned.

"How do we categorize that?" asks Markham.

Results of the new survey, by the Conference Board of Canada and Watson Wyatt Worldwide, where Markham is a consulting actuary, are to be presented today at a pensions summit in Toronto.

An early release was provided to the Toronto Star.

Key findings are that about 18 per cent of the 45 public companies polled across Canada have swung in the past two years to defined-contribution plans for future service.

Another 15 per cent said they will follow in the next year, while 5 per cent have or will get rid of defined benefits entirely.

Most said they were moving away from guaranteeing a certain benefit based on years of work and salary in order to avoid fluctuations in contribution requirements and to cut costs.

More than 60 per cent of public and private companies said they are making extra payments to eliminate funding shortfalls, which are anotther type of risk for employees if their employer fails.

Few of those employers (16 per cent) pay more into their plans than the minimum legal requirement.

Two-thirds of respondents think pension funding is in crisis, but the percentage who think it will last for many years has fallen to 48 per cent from 61 in 2006.

Many companies see the move away from defined benefits as a financial necessity, but most employers with the cheaper defined-contribution plans worry retirement benefits won't be adequate.

These lesser plans may thus make it difficult to recruit and retain top talent, or to ease out unproductive workers. The national unemployment rate is down to about 6.1 per cent, and a growing number of baby boomers will soon reach the age of retirement.

Public-sector plans are moving to increase both employee and employer contributions, while private-sector companies are increasingly shifting risk to employees.

Markham said that a 30-year-old worker five years ago might earn a pension equal to 54 per cent of pay by age 65 if he or she and an employer each contributed 5 per cent of pay to a defined-contribution pension plan.

But the outlook for returns on all forms of investment is now significantly lower because interest rates on long-term bonds are low all around the world. On the flip side, the cost of life annuities is much higher.

So, the same combined level of contributions (10 per cent of pay) might replace only 38 per cent of pay at age 65 (excluding government benefits).

To get back to a 54 per cent rate of replacement, contributions might have to rise more than 40 per cent, or the person would have to work years longer.

Markham said he doubts many employers, let alone employees, realize the impact of lower interest rates on prospects for retirement. Other research suggests most employees are ill-equipped to invest their retirement savings, and the available investment options are more costly and less well managed than defined pension plans.

The commission on pensions in Ontario, headed by labour-law expert Harry Arthurs, has until next summer to report.

A discussion paper on the Web at pensionreview.on.ca asks for suggestions about a number of questions, including how to make defined-benefit plans less costly, and surplus funds or contingency reserves less a bone of contention.

Director of research Robert Brown said at a pension conference yesterday that 20 research papers have been commissioned. Public hearings are to be held in six cities, starting in Toronto Oct. 15, the deadline for making written submissions.

See

The Importance of Savings

Your Pension Dollars At Work

P3= Public Pension Partnerships

Chinese Social Security Scandal

Social Insecurity The Phony Pension Crisis

Pension Plunder

Labour Is Capital

Pension Free China

Kids Are Commodities

Workers vs Worker

Air Canada Profits From Bankruptcy

Are Income Trusts A Ponzi Scheme

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Public Pensions Fund Private Partnerships

The battle of publicly funded pensions funds, your money and mine, being used in collaboration with private equity firms, hedge funds, to do leveraged buyouts needs to be seriously addressed, since those who pay into these funds have no controlling say over the fund managers.

As Robert Blackburn of New Left Review has written, the pension funds created over the past fifty years are huge new source of capital available for use to shore up capitalism.

But it is still public money, from union or public sector and government pensions. But without any meaningful corporate regulations giving the owners of these funds, us, any say in how they are invested. The democratization of public and institutional funds needs to be on the agenda of unions, the left, and the public. While institutional funds like pension funds call for their rights as shareholders, they do not allow their own shareholders the same rights of representation.

Teachers' BCE campaign gaining support

Some of BCE Inc.'s largest shareholders are lining up behind the Ontario Teachers Pension Plan and pledging to support the pension fund if it attempts to lead a takeover of the telecommunications company or even oust its embattled senior management.

Teachers, exasperated with BCE's weak stock performance under chief executive officer Michael Sabia, has already approached U.S. buyout firm Providence Equity Partners Inc. to explore a bid for the company worth close to $40 a share, according to sources.

That hefty price -- about a 30-per-cent premium to where BCE was trading last month -- could be enough to sway many of the company's long-suffering investors if Teachers decides to act. Although it chose not to submit a formal bid after BCE indicated it wasn't interested in selling, Teachers ratcheted up the pressure on the company in a regulatory filing this week by signalling its intentions to shift from a passive investor to an active one. Several investors said the only way BCE may be able to fend off an unwanted suitor now is for Mr. Sabia to step aside.

He said Teachers, like many investors, has become frustrated by what it views as unresponsive management and the glacial pace of Mr. Sabia's turnaround strategy.

In a filing with U.S. regulators on Monday, the pension fund said it was "exploring its options" regarding BCE, and sources confirmed it has been in contact with several buyout firms and pension funds in both Canada and the United States about the prospect of a takeover. The filing came less than two weeks after it was revealed that BCE had spurned another advance from private equity titan Kohlberg Kravis Roberts & Co., which has allied itself with the Canada Pension Plan Investment Board.

These sources described the KKR advance as a "wake-up call" for Teachers, which is bent on leading any privatization effort of the Montreal-based parent of Bell Canada. One person familiar with the matter said the $106-billion pension fund is dismayed by the cool reception its proposals have received from both Mr. Sabia and BCE chairman Richard Currie. Mr. Sabia and Mr. Currie could not be reached for comment.

"At some point the shareholders will speak," said one person familiar with Teachers' plans. "Boards of directors are supposed to represent the shareholders at the table."

See

P3

AIM High

Your Pension Dollars At Work

P3= Public Pension Partnerships

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AIM High

Having been burned with government bureaucrats running the Alberta Government Venture Capital fund (VenCap) it was sold off by the Ralph regime to Onex corporation in 1995.
It had potential, and even with a deficit its shares were worth $8 on the TSX. Which was not bad for the time. But the debt and defict hysteria led the government to sell off this potential golden goose.

In terms of publicly-funded venture capital funds, Alberta’s experience has not been positive. Vencap was established by the Alberta government with funding of $240 million and the objective of investing in venture capital. Vencap experienced many of the same problems as LSVCCs – a lack of good investments and a reluctance to take risks. As a result, a relatively small percentage of Vencap’s equity ended up in new Alberta ventures. The Alberta Opportunity Company faced similar problems in operating a program to support investments in start-up knowledge-based industries.

Yet its deficit was still underwritten by the Heritage Trust fund five years later, the Ralph regime was panic driven, selling off all government services it could at fire sale prices..

December 2000: All of the loans made to provinces from 1977 to 1982 have been paid back on time and without any missed payments. The only project loans left on the Heritage Fund books are Vencap and Ridley Grain Ltd. for a total of $98.8 million, which represents 0.8% percent of the Heritage Fund's total portfolio.

The Government is a risk averse regime that would rather underwrite private capitalists than use it's own capital.

Institutional investors key to growth of city's tech sector

Unlike other provinces and public pension funds, including the federal CPP, Alberta was more interested in selling off government assets and services to the private sector, than developing its capital base with the Heritage Trust fund and its other investment funds.

Risk adverse, wanting to divest itself of any economic responsibility, "we are not in the business of business", the government finally has realized it is a capitalist state and should be investing its social capital. However its social capital is not just the Heritage Trust fund, but public sector pension funds as well.

In a move predicted to earn up to an extra $500 million a year, the Stelmach government plans to create a new provincial Crown corporation to oversee $70 billion worth of financial assets.

The Edmonton-based investment powerhouse will be the fifth-largest pool of managed capital in Canada.

It would be exceeded in size only by the Caisse de depot et placement du Quebec ($143.5 billion), the Canada Pension Plan Investment Board ($111 billion), the Ontario Teachers' Pension Plan ($96.1 billion), and the B.C. Investment Management Corp. ($76.3 billion).

AIM Corp. would assume responsibility for managing the $16.3-billion Alberta Heritage Savings Trust Fund, several public endowment funds -- including the Alberta Heritage Foundation for Medical Research -- and a basket of public-sector pension funds.

The latter includes the $13.5-billion Local Authorities Pension Plan (LAPP), the province's largest public pension fund, and the $5.7 billion Public Service Pension Plan, among several others.

A recent study for the government concluded a stand-alone organization would be the best way "to achieve investment excellence," Alberta Finance said in a brief news release.

"The proposal follows best practices for top public sector investment funds such as the Canada Pension Plan, the B.C. Investment Management Corporation and the Ontario Teachers' Pension Plan."

During the Ralph regime everything not making money was sloughed off and contracted out or privatized. In order balance out the reduction in royalties and taxes coming in from the Oil industry, in the nineties the PC's found that like many governments they were carrying pension debt. As the third party to the Local Authorities Pension Plan(LAPP) which covers all MUSH employees and management in Alberta, they never contributed to the plan, rather like other governments they put all pension earnings into general revenues.

In the late nineties with a deficit and debt crisis, they looked at the debt they owed the LAPP and hived it off in plans to allow the contributors, employees and management as well as MUSH employers, to run it. Without of course the governments missing contribution. This left the LAPP in a deficit situation, causing its members to have to pay for the governments debt owed them.

In return for paying down the governments debt to the LAPP the members of the plan were offered investment autonomy, with moves to privatize the plan under membership control. Which was not a bad thing. It removed statist bureaucracy and red tape at a time when the market was booming, and as a fund managed by employee representatives from unions, management and professional associations, and employers. The board was in place, and hired its own CEO,and investment managers, as well as holding a series of input meetings with the membership, both for feedback and for an explanation as to how the funds would be managed.

In a short five years the LAPP was out of debt and the members actually paid less then was expected and in fact got a payback for overpayment's of the government debt. The reason? Bre-X. While the Bre-X swindle saw many make fortunes on the largest run of a penny stock to a $200 share in the shortest period in Canadian mining history, even for the mining scandals of the sixties, many also lost fortunes as the shares collapsed under the salting scandal that ensued. But not the LAPP they made money off Bre-X, and other investments. Because they were autonomous and now were no longer risk adverse, that is they were investing to make up the deficit, while maintaining the capital for their fiduciary responsibility to their retirees.

Once out of debt and making money, as they have for a decade, the government realized it was selling the golden goose if it allowed full autonomy, it reigned in its plans to privatize the LAPP. It remained under autonomous management but was still a subject to regulation by the Finance Department.

Had it been allowed full autonomy it would have made even more money. As it was with partial autonomy, and its own investment policies and managers it went from a deficit to $13. 5 Billion in assets.

Seeing it had a golden goose again, the Government has refused out right autonomy and has moved away from privatization of LAPP. Which may be the reason for it not wanting to talk about how it is looting public pension funds to underwrite its new investment corporation.

I almost missed it, but there it was, posted on the Alberta finance department's website.

The cryptic, one-page news release outlined a bill, introduced in the legislature Tuesday, to create a new provincial Crown corporation called Alberta Investment Management Corporation, or AIM Corp.

It will boast roughly $70 billion in assets.

That was it. There was no fanfare. No press conference. No grandiose quotes about the cosmic significance of this bold initiative from Alberta Premier Ed Stelmach, or Finance Minister Lyle Oberg. In fact, the latter didn't even respond to my followup call Wednesday. A department flack did.

The release itself was so blandly written it appeared designed to put reporters to sleep.

There is an irony here in that the ultimate capital partner in government P3 projects is not private hedge funds, nor private industry, but public pension funds. The Alberta government will find itself funding its own P3 projects with its new AIM Corporation. Just as governments world wide are being funded by Canadian institutional pension funds. And these same pension funds are crying about not having more government real estate and infrastructure projects in Canada to invest in.


See

P3

Your Pension Dollars At Work

P3= Public Pension Partnerships

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Conservatives Want You To Work Longer

In the U.S. they talk about increasing the age to obtain Social Security and they plan to privatize it. It is classic neo-conservatism

In Canada we have bleeding heart Conservatives, who adopt a social democratic approach, by upping some Old Age funding, allowing for income splitting, increasing the age limit for RRSP's , all the social spending in the current budget.

And while Paul Martin mused about changing the age limits for CPP and OAS, the Conservatives have actually changed the nature of the senior workforce demographic without doing that.

Pensions: Moves aimed at letting employees work longer

In one of the new measures, the government said it will begin allowing employers to pay a partial pension to an employee while that same worker is also contributing to the pension plan. This will make it easier for retired individuals to return to the work force part time. "Many older Canadians want to continue working and saving," the budget document states. "As Canada's population ages, it will be important to allow them to do so."

Of course it pays off since the major change here is to allow retired workers to work part time and pay into a supplemental joint pension RRSP with their employer. Which means more taxes for the state. And more workers for Macdonald's.

Keeping older employees in the workforce longer is a critical challenge for businesses as they struggle with a growing labour shortage, Canada's top central banker said Thursday.

Bank of Canada Governor David Dodge said companies need to become more flexible to keep staff past the standard retirement age of 65.

"The real challenge for us is to find ways that we can use people more flexibly -- whether that's numbers of hours per week, number of weeks per year -- as they get older," Dodge said following a speech to Calgary's Chamber of Commerce.

Keeping older employers in the workforce also requires removing "any barriers to their continued participation," such as more flexible work schedules.

And he said conventional pension schemes should be redesigned to meet the needs of those who stay on past 65.

SEE:

• Tories Red Budget

• Bleeding Heart Tories

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pensions, seniors, Canada, work, workers, retirement, Flaherty, Conservatives, government, RRSP

Making Good On Liberal Promises

Once again the Harper government makes good on Liberal promises.

During the announcement, the government also said it will spend $14 million on 775 projects for seniors under the New Horizons for Seniors Program, which was launched in 2004.

And none of the Seniors groups even mentioned Income Splitting as a priority!

CARP wants changes to the clawback on the Guaranteed Income Supplement, Cutler said.

Under current rules, Cutler said, if a senior receives any other income on top of the GIS, he or she loses 50 cents on each dollar from the supplement, which is aimed at very low-income seniors.

CARP doesn't want that rule to kick in for the first $5,000 of extra income a GIS recipient gets. That would encourage seniors to find part-time work, Cutler said.

See:

Pension Plans

Income Splitting

Pensions

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Income Trust Fraud

Dianne Urquhart speaking before the Commons Finance Committee investigating Income Trusts on Tuesday, January 30, 2007,in answer to a question from NDP member Judy Wasylycia-Leis said that indeed according to both Canadian Securities law as well as American securities law that there may have been unethical sales of Income Trusts to seniors based on false promises and could be investigated by the RCMP as fraud.

Judy Wasylycia-Leis was making the point that even with the change in taxation status the Trusts themselves operate in a fashion that current accounting practices would be considered illegal. A point neither the Liberals or Conservatives have bothered to deal with.

Mrs. Dianne Urquhart (Independent Consulting Analyst, As an Individual):

Thank you.

I support the income trust tax plan, with no increase in grandfathering beyond four years. I strongly urge that the income trust tax plan be enhanced by the addition of prescribed conditions to the Income Tax Act to stop income trusts from reporting deceptive, non-gap financial measures. Cash distribution must be defined as income distribution and return of capital distributions. The cash yield calculation should be restricted unless there is an equally prominent income yield calculation.

The federal government should not be giving tax incentives for an investment targeted to seniors where the product is an unsuitable investment based on the investment objective of secure retirement income and preservation of retirement capital. The high-risk design of income trusts and their deficient investor protection legal framework makes them unsuitable for seniors.

Making matters worse, the tax incentive is promoting the purchase of an investment where there is considerable malfeasance in the financial reporting and marketing material, which I'll speak about in a moment.

I have found that two out of three business income trusts pay distributions well in excess of their incomes. The average amount that the cash distributions are above income is 60%. The sources of the extra money are borrowed money, reserves from prior financing, and not retaining cash to replace plant, machinery, equipment, and software. This financial engineering, without proper transparency, is causing the return of capital to be capitalized as income. This is causing excessive pricing in the market.

In my research “Heads I Win, Tails You Lose”, I found that the business income trust market was trading at a premium of 55% relative to the TSX/S&P60, which comprises sixty of Canada's largest public corporations and a few income trusts. I also compared it to a sample of Canada's non-cyclical public corporations, which comprise the banks, the telcos, the utilities, and the power companies. On that basis, Canadian business income trusts were trading at a 55% premium. Even when I looked at the cashflow from operations, I found that income trusts were trading at a 40% premium. I believe the tax advantages in income trusts contributed 16% of the 55% premiums.

I conclude that the income trust tax plan with a four-year grandfathering period has a 10% negative impact on prices. My calculations differ from the calculations Mr. McKay asked about earlier with respect to what the investment losses have been since October 31 and the announcement of the plan. Business income trusts and energy income trusts, based on a roll-up of each of the individual trusts, are down 13%—up to about two to three days ago—for a loss of $23 billion.

On the basis of my detailed analysis of the tax advantages and the elimination of the premium associated with the tax advantages, it's my opinion that the income tax loss associated with the decision to introduce the income tax plan is $17 billion. This damage is a necessary consequence of a government closing a tax loophole that is not achieving benefits for the economy and is promoting the purchase of an investment by seniors for which this investment is unsuitable.

For a properly diversified portfolio with less than 20% invested in income trusts, the new tax damage is 2%. This is clearly capable of being absorbed by Canadians who invested in this security. Those who have higher losses than this have seen them occur as a result of improper diversification, or perhaps they have suffered the losses as a result of the malfeasance with respect to the improper marketing of income trusts to seniors.

I want to note that on May 3, 2006, the Canadian Accounting Standards Board said that the failure to distinguish clearly between returns on capital and returns of capital is inaccurate and potentially misleading, particularly when terms such as “yield” are used to describe the amount distributed.

Ms. Judy Wasylycia-Leis:

Thank you, Mr. Chairperson.

I just wanted to say that I didn't hear Dianne Urquhart condoning Enron. What I heard Dianne Urquhart saying was that we need to be vigilant at all times, and whenever there is the possibility of unethical practice or even criminal undertakings, we should be ready to crack down on it.

I want to ask Dianne, since I'm just getting up to date on this Prudential Securities issue, are you saying that what is common practice in Canada would be considered criminal in the more tightly regulated U.S. environment?

Mrs. Dianne Urquhart:

I would say that the RCMP and provincial and municipal police forces have the tools within section 380 of the Criminal Code today to call the deceptive cash yields...as has been said by the chairman of the Canadian Accounting Standards Board and by Paul Hayward, OSC senior legal counsel, who said in a tax journal in 2002 that an investigation could be conducted and fraud could be found. I'm not making that allegation specifically, but the wording concerns the Canadian Accounting Standards Board and Paul Hayward, OSC senior legal counsel. The actual criminal charges in the United States suggest that the misconduct of the limited partnerships of the eighties and early nineties was similar to that which has occurred in the Canadian income trust market, and it could be considered criminal in Canada upon investigation.

Ms. Judy Wasylycia-Leis:

Thank you.

I have one more question for Dianne Urquhart and then one for Mr. Teasdale.

Dianne, as you and others know, I have publicly stated that I support measures to shut down income trusts used as a way to avoid paying taxes, and I accept the statistics we've now had from a number of jurisdictions and a number of years, which are consistent with what you and others are saying.

My question to you, Dianne, is given the fact that the ways and means motion is likely to go through, based on the previous vote in Parliament.... And I've been working on this issue you've raised about the undervaluing—or overvaluing, sorry.

Ms. Judy Wasylycia-Leis:

No, it's clearly overvaluing.

It's a serious issue to change the Income Tax Act to deal with this. Is it still worth my while to do this, given the fact that, hopefully, we'll see over the grandparenting period the end of income trusts? Is it still important for consumers that we do it?

Mrs. Dianne Urquhart:

Yes, there is still $200 billion of current income trusts in the market, and 288 of the trusts are, I believe, in non-bifurcated markets--full transparency. I don't want those who know that their income trusts are overvalued having the opportunity to sell them to unsophisticated players. I believe we should have immediate requirements; the sooner we can get this into the Income Tax Act the better. The sooner we get transparency on the return on capital and the distributions, then we can have a market that's honest and not one in which sophisticated players dump trusts onto those who do believe the return on capital is there for their household expenses. It's just not there, because there is a limit on access to the amount of cash that's on the balance sheets and on the financial markets paying it.

A further hit on income trusts came when Seniors, those folks whom everyone in the income trust business says they speak for, spoke for themselves.

''The federal government should not be giving tax incentives for seniors to purchase an investment that is risky and does not have a proper investor protection regime in place,'' the National Pensioners and Senior Citizens Federations said in its brief to the committee. President Art Field noted that even before Flaherty announced the tax on trusts, the federation had passed a motion expressing concern seniors were being urged to invest money in what it called ''unsuitable'' and ''questionable'' income trust investments.

The Liberals who continued to opportunistically defend Income Trusts, as does Ralph Klein speaking of strange bedfellows, stated they of course would NOT have taxed Income Trusts...now they should have made that an election promise.

McCallum, meanwhile, defended the former Liberal government, noting it had moved to level the playing field between trusts and corporations, but by reducing the tax on corporate dividends rather than putting a tax on trusts. ''It's difficult to say what else we would have done had we stayed in government,'' McCallum added.

Well now we know what they would have, should have, could have done.

They issued their press release on the last day of the hearings, yesterday after Judy had issued her own private members bill, a bill that got NO attention from the MSM.

Despite the fact that neither the government nor the Liberals have addressed the real problem with Income Trusts that they are a Ponzi Scheme. An attempt to separate seniors from their pensions, since pensions are a vast untapped source of capital.

That is the elephant in the room,that the NDP has addressed in their private members bill.

“This NDP bill will bypass government inaction,” says Wasylycia-Leis.“We have a Finance Minister who claims he wants better securities regulation but continues to ignore this urgent problem. Meanwhile, our self-regulating investment system acknowledges there is a serious problem but has failed to produce an enforceable solution, and the industry continues to sell its products to unsophisticated investors using fuzzy numbers. This is unacceptable.”

See

Income Trusts

Pensions

Ponzi

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