Navigating the UCP’s Pension Agenda

In this final installment of Parkland’s two-part blog series on Alberta pensions, the author explores the UCP's stance on public pensions, offering context from Alberta's recent history to frame the discussion of the Alberta Pension Plan proposal. For a history of pension plans in Canada and Alberta, please read the blog “Ensuring Dignity in Retirement,” by Baldwin Reichwein, Richard Ramsay, and Jake Kuiken.

 

The United Conservative Party has a well-deserved reputation for playing politics with pensions. The latest episode in this trend is their proposal of an “Alberta Pension Plan” (APP) — an idea that’s seeing dwindling support even among UCP voters. But recent history shows that the UCP not only considers pensions fair game but also seems to have no qualms about concealing this stance in its election platforms.   

The UCP’s 2019 election platform, for example, said nothing about playing with Albertans’ pensions.

Did the Alberta electorate know about Kenney’s intentions for public sector pensions during the 2019 election? Not if you had read the 100-page “Strong and Free” platform. And during the May 2023 election, didn’t Premier Smith say that she “would not touch Albertans' pensions?” At that time, she conveniently accused the NDP of “fearmongering.” There seems to be a bit of a pattern here.

A recent history

Playing with pensions under Premier Kenney began with the UCP’s first budget, which introduced substantive changes to public sector pensions. In the first legislative sitting, Finance Minister Travis Toews introduced Bill 22 (disingenuously entitled the Reform of Agencies, Boards and Commissions and Government Enterprises Act), determining that the pensions of teachers (whose assets had for decades been managed separately under the Alberta Teachers Retirement Fund, the ATRF) would start being managed by the government’s own provincial agency, the Alberta Investment Management Corporation (AIMCo). To make things worse, Bill 22 was introduced without the customary courtesy of a heads-up phone call to either the board chair, the ATRF’s CEO, or the Alberta Teachers’ Association.

The government’s rationale was backed up by two claims. First, they claimed that AIMCo was a better investor than ATRF. That was based on a briefing paper prepared by a self-interested AIMCo, which questionably concluded that AIMCo beat ATRF’s performance. The second claim was about the supposed efficiency to be brought by AIMCo. By adding about $20 billion of additional funds, AIMCo could reduce the per-dollar costs of assets managed. This extra scale would also allow AIMCo to get invited into better deals to achieve higher returns — an argument that has been highly debated in both the investment and academic communities for decades, with little convincing evidence that scale matters above a certain level.

The UCP’s attraction to investment management seemed to coincide with the continued slump in the energy sector which faced few re-financing opportunities. Ironically, during the NDP inter-regnum, AIMCo proved to be a useful tool for the energy sector when AIMCo managed roughly $450 million in the Alberta Growth Fund. This program, announced in the October 2015 budget, was meant to support “growth” industries in Alberta. AIMCo apparently interpreted “growth” to mean that since the oil and gas sector was so badly beaten up, these companies’ securities would soar in value once oil prices rose. Fully two-thirds of what came to be advertised as the Alberta Growth Mandate went to the oil and gas sector, including servicing companies. But oil and fossil gas prices would remain in a funk for another five years, and a precise accounting of the losses incurred has never been given.

In 2020, the UCP government reported that the Growth Fund had been eliminated, claiming that “all investments exceeded AIMCo’s risk/return targets.” These investments would have been made whether the mandate was in place or not” (emphasis added). The latter suggested that normally the Heritage Fund would, or perhaps should, be investing in risky oil and gas companies.

In August 2017, struggling producer Trident Resources was loaned $12.3 million by AIMCo on behalf of the Growth Fund/Heritage Fund. In 2018, Trident was placed into receivership, with AIMCo having loaned a total of $60.3 million to Trident. AIMCo ”leveraged” investments in the Growth Fund with additional public sector pension fund moneys ($48 million) on the basis that this selection of investments was consistent with its mandate for the public sector plans. 

Bill 22 also repealed provisions of NDP changes in 2019 that would have allowed public-sector pension plans to leave AIMCo to seek other investment managers after a five-year notice period.

A central question around AIMCo’s takeover of ATRF’s assets was who would be responsible for the investment strategy: AIMCo or ATRF? That was answered in the fall of 2020 when AIMCo pulled out of negotiations with the ATRF as the two groups were unable to agree on who oversaw investment strategy and portfolio allocation decisions. Shortly after, Finance Minister Travis Toews passed a ministerial order that allowed AIMCo to veto the teachers' fund investment directions and said AIMCo would be the arbiter of disputes between the parties.

The Alberta Teachers’ Association followed with a critical lawsuit against the government. During hearings at the Court of King’s Bench, questioning by the Judge led the government and AIMCo to the conclusion they would lose and they agreed to settle out of court. With a new agreement, the ATA and ATRF had successfully pushed back at the government for not meeting their commitments that they wouldn’t take away investment decision-making from the various public sector pension boards. The new agreement, which replaced Toews' order, removed AIMCo's veto on investment policy-making.

Along comes the “Alberta Pension Plan”

Besides the chaos and uncertainty created by Bill 22, there was another prize sought after by the UCP: control over Alberta’s share in the Canada Pension Plan. This idea, which was not part of the UCP 2019 platform, soon surfaced as a “Recommendation 13” by the Fair Deal Panel created in the fall of 2019. Under Finance Minister Toews, this issue was studied principally through the engagement of Morneau Shepell, a human resources and actuarial consulting firm. This firm, later known as Lifeworks, is now owned by TELUS.

The provenance of this idea goes back to the days of the Western Canada Concept in the early 1980s. In 2001, the famous firewall letter signed by, among others, Ted Morton and Stephen Harper, called for a separate Alberta plan. This idea was also taken up by the Fraser Institute, which argued that a separate pension plan would require lower premiums because of Alberta’s younger population. More recently, the concept has been promoted by the Free Alberta Strategy co-authored by Danielle Smith’s Principal Secretary, Rob Anderson.

In November 2022, Danielle Smith charged then-Finance Minister Travis Toews to pursue the matter of an Alberta Pension Plan in a mandate letter. But as the 2023 election dawned — with the Alberta Pension Plan opposed by a strong majority of Albertans — Smith retreated and wouldn’t talk about the idea. In fact, she clearly stated that her government “would not touch Albertans’ pensions.”

However, in July 2023, shortly after the election, Ms. Smith resurrected the Alberta Pension Plan proposal in a mandate letter to Finance Minister Nate Horner, directing him to release the Lifeworks Report. This direction came despite her election pledge not to touch Albertans’ pensions.

On 21 September 2023, the launch of the Alberta Pension Plan proposal had all the hallmarks of the UCP communications planning. With an APP website came the long-awaited report of Lifeworks, along with a survey for Albertans about the idea, and an engagement panel chaired by former Alberta treasurer Jim Dinning. By the time of his appointment, Dinning had donated more than $20,000 to the UCP where he targeted donations to particular candidates. Also appointed to the panel was academic Moen Yahya, who had served on the Fair Deal panel and had written about pension over-regulation for the Fraser Institute.

The government’s sales pitch at the news conference was quite simple. It stated that Alberta’s entitlement to the Canada Pension Plan pie was a staggering 53 per cent (or $334 billion), as determined in the Lifeworks report. This over-optimistic, non-starter of a number, would enable Alberta to lower premiums and possibly raise APP entitlements above CPP levels. On the same day, as the UCP’s taxpayer-funded $7.2 million marketing campaign was to begin, Trevor Tombe, a professor of economics at the University of Calgary, used standard actuarial tables and demographic profiles to conclude that the Lifeworks number was probably too high by about $200 billion.

It is important to note that the Lifeworks Report makes no recommendations and the report’s author(s) name(s) were withheld due to “privacy reasons.” This suggests that UCP politicians did not want the report’s authors answering questions about their work, which allowed the government to cherry-pick certain observations in the report to make an APP more appetizing to Alberta’s electorate.

Predictably, the Canada Pension Plan Investment Board (CPPIB) was nervous as the proposal and report surfaced. CPPIB staff had been monitoring this concept since the Fair Deal panel reported. After the public announcement featuring the premier, the CPPIB wrote an open letter to the chair of the Engagement Panel citing numerous shortfalls of the Lifeworks report and more generally with the proposal. The CPPIB also engaged a third-party market research firm to analyze the UCP survey in terms of best practices of public engagement. That firm’s report determined that the survey was highly misleading.

In addition to the concerns of the CPPIB, many provincial finance ministers were worried on behalf of their constituents, who were understandably anxious about what the APP exit would do to their benefits and contribution rates. The interim conclusion to all this interprovincial kerfuffle was that Canada’s chief actuary has been tasked with giving Canadian finance ministers numbers pertaining to the transfer of the Alberta portion of the CPPIB’s assets and liabilities. At present, we are awaiting the release of the actuary’s report and the restarting of the engagement panel.

Implications

Since the UCP started playing with pensions, I have been unable to discover its provenance or motivations. The most sinister interpretation is that the UCP does not consider these pension fund moneys to be held in trust for pensioners. In an unguarded moment, Kenney seemed to reinvent the pension bargain when he spoke inaccurately about government guarantees which don’t exist for public sector pensions. Toews’ heavy-handedness in the whole affair suggested that indeed the government wanted AIMCo to have total control over investments. Who appoints the AIMCo board but the government? Following the money suggested that pension funds were to advance the interests of the UCP and their business partners, primarily in the energy sector.

Another thesis advanced by Dinning at the news conference of the APP proposal’s launch was the idea that Alberta almost overnight would become an international financial centre. “Why should Toronto have all the rich-paying investment management jobs?” This however was not the pitch of the UCP government, which emphasized the pocketbook advantages of lower contribution rates and higher benefits.

More ominously, and buried in the survey, were questions about how the APP should be managed. Deftly avoiding the disaster-prone AIMCo as an option, the options given were 1) stay with the CPPIB, 2) an Alberta government investment manager, and 3) private investment managers. It was the private sector that Dinning was probably promoting with his remarks.

Recent opinion polls show diminishing support for the creation of an Alberta Pension Plan. In this survey from January 19^th, only 22 per cent of Albertans would agree with leaving the CPP, while 52 per cent oppose it and 26 per cent are undecided. But the worry for Albertans is that even though a referendum is legislated under Bill 2, the Alberta Pension Plan Protection Act (sic), the Bill also contains a provision that allows the cabinet to treat the vote as “non-binding.” It seems that even in the event of a vote against an APP, the UCP could proceed to implement the plan.

  

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