BRIEF

Would Your Pension Be Better Off In Canada?
Scott Ballantyne, Local 802 and Tom Calderaro, Local 47

December 14, 2017

Abstract

We’ve received mail from many U.S. AFM Members who feel our pension fund would have been better off under Canadian management. Existing comparisons of the two pensions are incomplete and contain some serious mistakes, so we did our own. Here’s a summary of our results:

Transparency
The U.S. Pension system is vastly more transparent than Canada’s, which appears completely opaque. This is a serious problem which makes it impossible for a third party to evaluate the health of Canadian pensions. On the other hand, the Canadian pension plan does a better job communicating with its members than the U.S. AFM-EPF has made great strides in this area but still lags behind Canada.
Regulation
The Canadian pension system is much more conservative and involved in pension plan operations than the U.S. pension system is. While this has made Canadian benefits lower it may have contributed to a healthier pension system.
Investment Performance
The Canadian Pension plan has superior investment performance and 50% lower investment costs compared to the U.S. plan. The U.S. plan is larger which may account for some of its difficulties.
Benefits
Both plans have had difficulties which have led to pension cuts. The U.S. plan had several cuts, including lowering its benefit multiplier to $1.00 USD in 2010. The Canadian cuts were later, reaching a low of $1.26 USD in 2013, levels that each plan still has today. Perhaps the most serious mistake made in analyzing the Canadian plan is the claim that the current benefit multiplier is three-times the size of the U.S. benefits multiplier. This is incorrect. It is only $0.26 USD higher.
Expenses
The U.S. plan spends substantially more per participant than the Canadian plan. Some of this is explainable by the much larger size of the U.S. plan, but not all.
General Health
Due to the opacity of the Ontario pension plan system, it is impossible to say how healthy the Canadian pension plan is. They have suffered recent setbacks and been forced to reduce benefits to levels close to the American plan. Whether this is temporary or a sign of more trouble to come is impossible to say without more information.
Conclusion
Superior expense and investment performance has not saved the Canadian plan from the need for reducing benefits and the Canadian plan’s benefits are currently very close to those in the U.S. The Canadian plan may be healthier than the U.S. Plan; if it is, we believe this is due to more conservative financial management forced on it by regulators. While we encourage the U.S. plan to continue to improve investment performance and cost controls, these will not solve the existing structural problems faced by the AFM-EPF. Both plans (and regulatory systems) could learn some good lessons from each other.
1 Background
2 Fund Transparency and Regulation
 2.1 Transparency
 2.2 Regulation
3 Investment Performance
4 Benefits
5 Expenses
6 General Health
7 Conclusion

[NEXT]