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EDMONTON — You’ve probably already read enough about Alberta’s threat to secede from the Canada Pension Plan (CPP), take a share of the existing fund and establish an Albertan one, which would hoist a young working-age population out of the CPP and make the plan more expensive for the older, less productive remaining provinces.
Last week, the Alberta government released a report on the mathematics of CPP secession, an act whose legality is unquestioned and expressly provided for in the Canada Pension Plan Act. The mere whisper of such a move created wild consternation in the remainder of Canada, and not everybody in Alberta likes the idea. I’m not here now to argue in favour of it, as an Albertan, but …
… well, there’s an interesting little shell game going on here in the details of the argument. The Alberta government’s report on the basics of the scheme was prepared by LifeWorks, a human resources consultancy that used to be Morneau Shepell and is now Telus Health. In spite of the fast-changing branding, those at Lifeworks are pension experts if anyone is.
An important actuarial question they had to address is: how much money would an Alberta pension plan (APP) be entitled to start out with if Alberta left the CPP? That amount, the initial post-secession entitlement, is crucial for predicting the APP’s future contribution and benefit rates.
Well, there’s an explicit legal formula for this in the CPP Act, at Section 113(2) if you’re curious or simply insane. It was put in the legislation at the behest of the Ontario government and its premier, John Robarts, who wanted to protect the ultimate constitutional authority of the provinces over pensions.
Robarts told the Ontario legislature in 1965 that the purpose of the section was to provide “that we should be able, at any future time, to leave the CPP and to be placed in precisely the same financial position as if this province had operated an identical but separate plan from the outset.”
This is the right Alberta is threatening to invoke now, but the language in Sec. 113(2) is somewhat ambiguous — as the LifeWorks report acknowledges. The law says that Alberta can require the CPP to hand over all contributions ever made by people employed in Alberta, plus the “net investment return” derived from those contributions by the activities of the CPP Investment Board (founded in 1997) and its predecessors.
All the benefits ever paid to Albertans are then subtracted, along with a proportionate share of historic administration costs. There’s no explicit requirement that the subtracted benefits are subjected to the same compounding as the contributions, so under the plainest reading of the law, Alberta would be owed an estimated $747 billion upon secession in 2027. This is a sum that, most inconveniently, would represent an expected 118 per cent of all base CPP assets.
That’s not really a fair way to calculate things, mind you, and even LifeWorks doesn’t see $747 billion as a reasonable demand, but that does seem to be how the law is written. LifeWorks proposes that a more suitable formula is “to apply investment returns (on CPP funds) to the net cash flows of (Alberta) contributions less (Alberta) benefits payments and CPP administration costs.”
This seems like the most natural way to provide the Robarts counterfactual: how much would Alberta be entitled to if it had never entered the CPP, and had gotten CPP-like returns on its own Quebec-style plan?
Unfortunately, Albertans have always been disproportionate contributors to the CPP, so the median LifeWorks estimate of the province’s specified share is still $334 billion, or 53 per cent of what is now in the CPP kitty. This is the proposition, or one of them, that has had everybody outside Alberta howling with indignation.
Enter the University of Calgary economist Trevor Tombe, who had his own independent analysis of an Alberta pension plan ready for coincidental release. Tombe largely concurs with the LifeWorks math: if you follow its algorithm, which already grants a mathematical concession not found explicitly in the text of the law, Alberta would be entitled to “approximately $300 billion.”
Prof. Tombe’s goal is to model an APP realistically, and he concludes, for undisguisedly political reasons, that this demand is simply impossible, not gonna happen. After all, a lot has changed since 1965, and you can’t really expect a camphor-scented old statute to be followed even approximately.
You know the outcome: within a matter of days, the Globe and Mail’s centralist titan Andrew Coyne is raving at us that Morneau Shepell/LifeWorks/Telus Health pension math is a hallucination; that Prof. Tombe’s politically adjusted model is an expression of Euler-level genius; and that Alberta’s legal claim on $300 billion or thereabouts is a demented act of insolence to Confederation.
Everybody agrees, mind you, that $300 billion is roughly the net amount Alberta really has made available to its provincial brethren within the CPP. And everybody agrees that Alberta has the right to leave the CPP and take some amount out. It’s really just that the text of the law, and the Robarts “interpretation” of a law Robarts helped craft, are unbearable in 2023. Tombe handwaves these things away, and Coyne shows almost no sign at all that we are talking about a statute of the Dominion.
He does observe that the courts would surely find some creative way to minimize Alberta’s allocation, and no doubt he’s right about that. When Alberta complains about an electoral system that is openly rigged against it, in Senate and Commons alike, the Constitution and the statutes that are as inflexible as the Koran. Surely we must honour the founding pacts of our state at the expense of political equality itself. But the moment the devious sheiks and cowpunchers discover a law that works to their advantage, history and statutory texts vaporize.
Nobody in Alberta is unfamiliar with this game, and I’m pretty sure the true goal of the Alberta pension plan project is not to leave the CPP, but just to remind us how it’s played.
Source: National Post