In late November, the federal government announced it was moving a $1.9-billion “non-permitted” surplus out of the Pension Service Pension Plan and into a general account.
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The move set off a public spat between the government and public sector unions, with each side accusing the other of spreading misinformation, leading to some confusion as to what was actually happening with the surplus.
Here’s what you need to know about the surplus and where the funds are going.
How did this all begin?
While the government was contributing hundreds of millions of dollars to the pension between 2013 and 2018 to ensure it was fully funded, a strong market performance between 2018 and 2024 led to the surplus.
The surplus is “non-permitted” because the Income Tax Act limits the amount of surplus the pension fund can have. And the government is required by law to take action when the pension plan’s assets are 25 per cent larger than its liabilities.
When a non-permitted surplus exists, the government can either pause its own contributions to the fund, stop employees’ contributions or move the surplus to its consolidated revenue fund — a central government bank account.” A government actuary report projected a multi-year pause in employer contributions to the pension plan, the Treasury Board has said it has no plans to take a contribution holiday.
Anita Anand, who was Treasury Board president until a cabinet shuffle in late December, has said the government planned to transfer the surplus to its consolidated revenue fund and that it would remain there “while next steps are considered.”
The government has said no decision has been made about the potential for a future surplus.
What has the fight been about?
Unions and groups that represent retired public servants met the move with alarm.
While the government hasn’t said what it will do with the surplus, the Public Service Alliance of Canada (PSAC) has denounced “any attempts to unilaterally allocate these funds” and said they should go towards benefiting the workers and retirees who are members of the pension plan.
PSAC, which is Canada’s largest federal public sector union, has claimed the government planned to “raid” $9.3 billion from the federal public service pension surplus. That number was pulled from projections over four years outlined in the actuary report.
PSAC national president Sharon DeSousa has argued that Anand could have taken different courses of action. She said the government should have been more transparent and fair about the issue.
“She chose to take the option that doesn’t benefit workers,” said DeSousa. “That’s the sad part considering it’s workers who actually contribute 50 per cent to this pension plan, like the employer.”
In early December, Anand then accused PSAC of spreading misinformation about the surplus. In a letter to DeSousa, Anand wrote that “the union has continuously misled Canadians to believe that the non-permitted surplus is over $9 billion. This is incorrect.” She said that number represented projections and was “not reflective of any deliberate or predetermined government decision” and that it was misleading to suggest to members their pensions are at risk.
Anand also stressed that the transfer of the funds had no impact on public servants’ pension benefits and that contributions to the pension fund would continue without any interruption.
“At the same time, contrary to the claims made by PSAC, doing so does not represent any financial benefit or windfall for the government,” Anand said.
What do the experts say?
The government’s announcement to move the surplus comes at a time when it’s also looking to reduce spending across the government, including through attrition, hiring freezes and potentially layoffs of permanent employees.
David Macdonald, a senior economist with the left-leaning think tank Canadian Centre for Policy Alternatives (CCPA), said it’s fair that public servants might be upset by the government’s decision.
“Half of that money, in a sense, is the workers’ money that’s just going to be scooped and put into general revenues to pay for whatever the government wants to pay for,” Macdonald said. “Particularly when workers are footing half the bill, it’s best that the workers are the ones that benefit and that this isn’t just an accident of interest rates that means the government gets billions of extra dollars to spend on its priorities. It should be something that the workers have a big say in because half of it’s their money.”
What do unions want?
PSAC said it wants the government to “invest the surplus in pension fairness for public service workers by suspending employee contributions.” The union said it also wants the government to fix the “unfair” two-tier pension system introduced in 2012 under then-prime minister Stephen Harper. The changes meant any public servants hired from 2013 onwards would have to work an additional five years before reaching retirement age.
The Professional Institute of the Public Service of Canada, which has said it “strongly opposes” the government’s decision to move the funds to its general revenue, called for the transfer to be paused and for the government to “engage in meaningful consultation with unions.”
The union said a contribution holiday for the employer and employees would provide “immediate relief” and said “targeted improvements to the pension plan would ensure long-term sustainability and demonstrate genuine respect for public service workers’ contributions to Canada.”
The Public Service Superannuation Act, the law that lays out standards for the public pension fund, doesn’t allow for the non-permitted surplus to be used for plan benefit enhancements.
Canada has a history of pension surplus drama
Back in 2012, the Supreme Court of Canada ruled that major public unions were not entitled to a $28-billion pension surplus that the federal government used to help pay down its deficit over a decade earlier.
In 1999, the total surpluses of pension plans for three groups of federal employees — public servants, the Canadian Armed Forces and the RCMP — had ballooned to $30.9 billion.
A year later, the Liberal government passed a new law that allowed for the government to take $28 billion from the accounts directly, which the ruling said reduced “the actuarial surplus in those accounts.” While unions and associations went to court with hopes of getting the government to return the funds to the plans, they weren’t successful as the Supreme Court unanimously decided that the government didn’t have to return the funds.
The assets that are earmarked for pension purposes are owned by the government, and the court determined that the government has control over the decision-making as to how these assets are used.
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