Flipping The Line: You want to put our pension funds into the hands of these guys?

Max Fawcett appreciates Ken Boessenkool's recent column to disparage the equalization referendum: now he wants the firewall author to recant the rest of it.

The Line welcomes angry rebuttals and responses to our work. The best will be featured in our ongoing series, Flipping the Line. Today, Max Fawcett replies to Ken Boessenkool’s recent article on why Alberta’s equalization referendum is dumb.

We should give people credit when they update their opinions to reflect the latest information, and Ken Boessenkool deserves full marks for turning his back on the idea of an equalization referendum. As one of the co-authors of the so-called “Firewall Letter,” Boessenkool’s willingness to publicly criticize fellow co-author Ted Morton is particularly noteworthy. But when it comes to the rest of the contents of that letter — and particularly the idea of an Alberta Pension Plan, Boessenkool still gets a failing grade. That’s because while Kenney’s proposed referendum may be a waste of everyone’s time, an Alberta Pension Plan — something Boessenkool still enthusiastically supports — would almost certainly be a waste of their money.

In a November 2019 piece for the CBC, Boessenkool describes an Alberta Pension Plan as a “no brainer.” He’s actually right about that, just not in the way he intends. After all, who in their right mind would trust their hard-earned pension funds to provincial corporation AIMCo, the Alberta Invesment Management Corporation, an organization that has consistently missed its marks and underperformed its peers? In the first quarter of last year, when the pandemic roiled global markets, the Canada Pension Plan Investment Board posted a 3.7 per cent loss, which the Globe and Mail’s Andrew Willis described as “best-in-class results.” By comparison, AIMCo saw its ratio of assets under management to liabilities shrink by 13.4 per cent. “The bottom 5 percent of pension plans were down by an average of 12.7 per cent, according to RBC Investor and Treasury Services,” Willis wrote. “That’s AIMCo’s neighbourhood.”

This isn’t a new neighbourhood for AIMCo, either. Just ask the Local Authorities Pension Plan: “As measured by quarter ends,” it said in a recent report, “AIMCo has been short of LAPP’s SIPP-specified value-added expectations for 49 consecutive quarters, or 12.25 years.” Translation: they’ve been missing their prescribed benchmarks all the way back to the Ed Stelmach era.

AIMCo’s most embarrassing miss came recently on a failed volatility trade, one that ended up costing its clients $2.1 billion and almost certainly greased the skids for former CEO Kevin Uebelein’s departure. According to Gontran de Quillacq, an expert who specializes in options trading and derivatives, the strategy used by AIMCo was “amateurish” and exposed it to excessive risk.

Even if AIMCo has learned from its recent financial mistakes, it’s not clear the Government of Alberta has. Unlike most pension fund managers in Canada, AIMCo is theoretically subject to directives from the provincial government — ones that could include where and how to invest. And while now-former CEO Kevin Uebelein insists that the current government has never exerted any influence over its decisions, that same provincial government refuses to take up Bill 208. That bill, which was introduced by NDP finance critic Shannon Phillips in December, would protect the independence of AIMCo, increase representation from members of public pension plans on its board, and require any decision to withdraw from the CPP to be put to voters.

But the heart of Boessenkool’s argument in favour of a provincial pension plan — and its biggest weakness — is the belief that Alberta’s future will resemble its past. He cites a Calgary Herald column that was written around a “leaked” AIMCo analysis, which stated that an Alberta Pension Plan could deliver the same benefits at a lower cost — 7.2 per cent of payroll rather than the CPP’s 9.9 per cent. “Over a quarter of the premiums collected in Alberta pay for pensions of residents in other provinces,” he wrote. “This works out to $2.0 billion (or $450 per Alberta resident per year) in premiums that Albertans are overpaying by not having their own identical pension plan.”

This math obscures the reality that a disproportionately high number of Albertans retire to other parts of the country, and therefore receive their benefits at addresses in British Columbia or Nova Scotia. For example, according to Statistics Canada data, in 2015-16 there were 2,125 Albertans over the age of 65 who moved to B.C., with only 1,454 heading the other way. And while these movements aren’t consequential when said seniors are covered by the same national pension plan, they very much would be if Alberta were to withdraw from the CPP.

That’s not the only aspect of AIMCo’s apparently favourable math that could change, either. “Consider a scenario where the Alberta energy sector collapses and results in a significant net migration of working age people out of Alberta,” its analysis suggests. “Under this scenario, Alberta may have been better off remaining in the CPP.” In other words, repatriating Alberta’s CPP assets wouldn’t just involve the risk of giving them to a fund manager with a history of underperformance. It would also amount to doubling down on the oil and gas industry itself. Why, as a province, would Alberta want to repeat that error?

Even a Klein-era committee came to roughly the same conclusion, noting that the province’s demographics “could shift quickly and significantly.” There’s also the irony that any decision to create an Alberta Pension Plan could trigger this very demographic shift. Thousands of young families who are already teetering on the edge of a decision to leave the province, whether because of the current government’s attack on doctors, its cuts to post-secondary education, or its ongoing romance with oil and gas, could decide to pull the trigger if they see Alberta withdraw from the CPP. Given that recent data already points to a potential brain drain, this is a very real risk worth considering — and avoiding.

So yes, a referendum on equalization is a dumb idea. But the rest of the “Firewall Letter” that Ken Boessenkool remains so enthusiastic about is even dumber. If anything, what Albertans need is a reverse firewall: one that protects them from a provincial government that seems determined to damage their future far more than Canada ever could.

---

The Line is Canada’s last, best hope for irreverent commentary. We reject bullshit. We love lively writing. Please consider supporting us by subscribing. Follow us on Twitter @the_lineca. Fight with us on Facebook. Pitch us something: lineeditor@protonmail.com