House of Commons

House of Commons testimony on Canada Post’s pension

The following are remarks delivered on September 27, 2016, by Common Wealth Founding Partner Alex Mazer before the House of Commons Standing Committee on Government Operations and Estimates. The committee invited Alex to comment on the future of Canada Post’s pension arrangements as part of a review of the postal service currently being conducted by the federal government.



Good morning. Thank you for inviting me.

My name is Alex Mazer. I am a Founding Partner of a company called Common Wealth. Common Wealth is focused on expanding access to pensions, working with labour unions, governments, and some of Canada’s leading pension plans. Throughout my career, I have had the opportunity to provide advice on pensions to government ministers, senior civil servants, labour leaders, and pension plan executives.

Today I would like to offer some thoughts on the future of Canada Post’s pensions. As you know, pensions have been a focal point in recent collective bargaining, and they feature prominently in the Task Force’s discussion paper.

I believe there is a path forward on pensions that will create value for management, labour, and the government. Such a path will require compromise and creativity. But I believe it is well worth the effort.

I will make three main points today. First, shifting from defined benefit to defined contribution can be more expensive than reforming the existing plan, and is likely not the best option. Second, any reforms to Canada Post’s plan should follow the principles underlying Canada’s best public pension plans. Third, to achieve the best outcome, the government should consider sponsoring a multi-stakeholder process supported by the right expertise.


The costs of shifting to DC

A shift to defined contribution is often suggested as a fix for pension sustainability issues. Canada Post management has recently shifted to DC for new hires within certain segments of its workforce. It proposed such a shift in recent collective bargaining with the Canadian Union of Postal Workers.

While DC plans, by themselves, create less financial liability for employers than DB plans, the picture is more complicated when there is an existing DB plan, as there is here. A 2014 paper by Dr. Robert Brown, entitled “Shifting Public Sector DB Plans to DC,” examined this issue. Dr. Brown is a professor emeritus of actuarial science at the University of Waterloo and former President of the International Actuarial Association.

Dr. Brown’s paper concluded the following:

  • First, converting to DC makes the management of an unfunded liability more risky and difficult
  • Second, shifting to DC actually increases the cost of delivering a comparable pension benefit – a 77% increase according to modelling done by Dr. Brown

These conclusions are consistent with the Task Force’s discussion paper, which states that a shift to DC would be of limited effectiveness in addressing Canada Post’s financial challenges. 


A principles-based path forward for the Canada Post pension plan

If a shift to DC is not the right option, that does not mean that reforms to Canada Post’s pensions are not desirable. The goals of such reforms should be to enhance the corporation’s financial sustainability while delivering as much retirement security as possible. Canada’s best public pensions provide a set of design principles that can help guide such reforms. These principles include:

  • First, joint sponsorship and governance between labour and management. Because this improves oversight and spreads risk, Ontario has exempted jointly sponsored plans from solvency funding requirements. The federal government should consider a similar exemption for Canada Post, provided the plan shifts to joint sponsorship and governance. This would offer a principled basis for eliminating the major source of Canada Post’s pension problem.
  • Second, independence from the sponsor. The most successful pension organizations are arm’s length and independent of their sponsors. Pensions are not Canada Post’s core business, yet the corporation retains the complex responsibility of managing the plan. A reformed Canada Post pension plan could be delivered by an independent, fiduciary organization whose sole mandate is to deliver cost-effective retirement security for members.
  • Third, professional, in-house investment management. By having in-house professionals manage investments, Canada’s top pension plans reduce costs and create investment opportunities that help increase risk-adjusted returns. With nearly $22 billion in assets, Canada Post may have the scale to set up its own internal pension manager. It could also consider having its assets managed by another public asset manager, such as PSP Investments, which manages the assets for most federal public pensions.
  • Fourth, some flexibility in plan design. Many leading plans allow for adjustments in the event assumptions do not turn out as planned. For instance, many plans make indexation contingent on investment performance. Such compromises will not be easy, but are likely necessary for the plan’s long-term sustainability.

To realize these principles in the specific context of Canada Post, the government should establish a dedicated process. Such a process should have a mandate that balances financial sustainability and retirement security. It should include representatives from the corporation and its unions, as well as a mix of cross-disciplinary expertise from the pension community

That concludes my remarks. I look forward to the committee’s questions.

Alex Mazer

Alex Mazer

Alex Mazer is a co-founder and co-CEO of Common Wealth Retirement, a mission-driven financial technology company that provides straightforward, portable retirement plans. To advance our mission to make it possible for everyone to have a financially secure retirement, Common Wealth focuses on serving those not covered by workplace retirement plans, including SMBs, not-for-profits, self-employed professionals, and modest earners.

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