As a kid, my parents stayed up into the late hours of the night to watch Federal election returns. They were hard pressed to get me to pay attention to what was happening in Ontario let alone the country. Last night I became my mother’s son, watching until the end of Prime Minister – Elect, Justin Trudeau’s speech. I am not much for politics but I have to admit that Trudeau’s convincing win last night and his relatively well thought out and delivered speech gives me some optimism that this new government won’t be a disaster. I am sure other hard core observers will have differing opinions.
What was on my mind more than anything was how this election would shape the future of pensions in Canada, and especially in Ontario.
To briefly summarize our history – Canada introduced the Canada Pension Plan in 1966 and although the original funding was bungled putting lifetime costs on the children, grandchildren and great-grandchildren of the original retirees – the program is largely considered a success. At the same time, provincial governments started introducing pension legislation for private pension plans intended to protect the interest of plan members. A second round of legislative changes that came through the 1980s substantially upped the complexity of the legislation and came with onerous administration and funding rules just as the robust economic engine that was driving defined benefit pension promises was starting to lose steam. By the end of the 1990s and into the 2000s the private sector defined benefit plan was destroyed under the weight of over-regulation.
Pension rules today make it much more likely that a defined benefit plan will deliver on its promises in good times or bad — but as a consequence it is hard to find a private sector employer willing to make defined benefit promises. Successive provincial governments of all stripes have stood by and watched our private pension system erode notwithstanding substantial lobbying from the pension industry on the needed steps to fix the system to fit the new economy. In the end, the Liberal Party in Ontario decided that instead of fixing a broken system we should leverage a system already working just fine – this became the momentum for expanding the CPP.
I started writing about how bad of an idea expanding the CPP would be back in the fall of 2013 (click here). Unfortunately for Ontario’s Liberals, the Federal Conservative government wanted no part of expanding the CPP. It is my theory that from the inside, the Conservatives realized just how difficult it would be to expand the CPP. I think the Conservatives also worried taking more money off pay cheques could have a negative effect on the economy. I personally am not sure this latter argument has been proven — but having looked closely at how the CPP runs (click here) I am satisfied that the first argument – that it will be very difficult to expand the CPP – is sufficient to put the idea away for good.
On May 1, 2014, the Ontario Liberal Government decided to play a game of chicken and pushed ahead with what at the time was being touted as a “mini-CPP” just for Ontario. I came out immediately to explain why the Ontario Retirement Pension Plan was a much worse idea than expanding the CPP (click here). Since May, 2014, I have spent considerable time writing and speaking about the ORPP and how bad of an idea it really is. Along the way, the proposal has been watered down by exempting all sorts of workers with ‘comparable plans’ and my prediction that the program desperately needed cooperation from the Federal Government to provide administration and tax status for the plan has proven bitterly true.
I wrote here that one road for Ontario’s elected leaders to get out from under this mess would be for there to be a new Federal Government open to expanding the CPP. Last night, after some pretty visible campaigning by Ontario’s Premier, Ontario got their get-out-of-jail-free card in the form of a majority government for Justin Trudeau and the Federal Liberals.
So, is it safe to assume that Ontario’s Premier will announce that they are scrapping the ORPP and getting behind the Federal Liberal’s move to expand the CPP? Will the Federal Liberal’s get going on an expanded CPP immediately? After all, their campaign promise was to “work with the provinces and territories, workers, employers, and retiree organizations to enhance the Canada Pension Plan”.
Here is how I think this will play out: Ontario’s Premier Kathleen Wynne will confirm that the ORPP will fall away IF the new Federal Government follows through on its promise to expand the CPP. It is going to take some time for Wynne to get a meeting with Trudeau, longer still to get expanding the CPP to the top of the priority list for the new government, and longer again to actually implement changes to the CPP. But for Wynne, she wants to go down that road and she can comfortably tell Ontarians that cancelling the ORPP is not going back on an election promise – just changing the way in which that promise will be delivered.
But as a risk manager, I am always considering the alternate scenario: What if in discussions with the other provinces, no one but Ontario has the guts and political capital that is needed to undertake a major change like an expanded CPP? I think it is a real possibility that once provincial finance ministers start to see the contributions required today and the expected benefits to be delivered many decades down the road that they won’t be nearly as excited about the prospect of expanding the CPP as Ontario’s fearless leader. If that happens, Trudeau will certainly offer the Federal Government support that Ontario needs to successfully administer the ORPP and we will be back to square one.
All I can say is that it remains very interesting to see how this will unfold.