AIMCo to Make Its Case in Alberta Pension Reforms

The government of Alberta wants to get its pensions house in order. On the agenda: a possible management shake-up.


Leo de Bever, chief executive officer of Alberta Investment Management Corp., speaks to the Empire Club of Canada in Toronto, Ontario, Canada, on Thursday, June 11, 2009. AIMCo, Canada’s fifth-biggest pension fund manager, plans to spend about C$1 billion ($910 million) in the next year on private-equity investments as stocks rebound. Photographer: Norm Betts/Bloomberg News


Canadian provincial public pension plans and plan managers have long gained notice for their success. Among the headline makers have been the Ontario Teachers’ Pension Plan, the Canada Pension Plan Investment Board and Caisse de dépôt et placement du Québec. Now Alberta’s pension plans are in the spotlight for a proposed package of pension reforms to combat C$7.4 billion ($7.1 billion) worth of unfunded liabilities and a public sector workforce of which many employees and employers are contributing 25 percent of salaries toward pension savings, some of the highest contribution rates in Canada.

The government is proposing changes to four plans — the Local Authorities Pension Plan, the Public Service Pension Plan, the Management Employees Pension Plan and the Special Forces Pension Plan — all of which are managed by the Alberta Investment Management Corp. For the time being, AIMCo is the mandated manager for the funds affected by the proposals. But the proposed reforms would allow trustees and boards to select their own managers, potentially taking the reins away from the present administrator.

For his part, AIMCo CEO Leo de Bever remains skeptical of that outcome. “We hope that we can convince our clients over the next four or five years that being part of a large manager like us ... has enormous advantages, and therefore the logical thing to do would be to stay with AIMCo,” he says.

According to de Bever, most management and administration are done internally and account for 30 percent to 40 percent of AIMCo’s budget; when compared with outside management, that proportion would rise to some 60 percent of costs. He realizes that ultimately what the pension plans and the government work out in terms of management is out of his hands. “The only thing we can control is ensuring that being part of a C$70 billion entity has enormous benefits,” adds de Bever.

A key point of the reform is that all early-retirement incentives will be removed for participants whose retire dates are after 2015. The government expects that this will reduce costs, and thus the contribution rates for new benefits, by at least 3 percent of salaries.

Members whose age plus service equals 85 or more have so far been allowed to retire without a reduction to their pension from age 55 on . For service after 2015, however, the pension will be reduced for anyone seeking early retirement before the age of 65.

“The most important part of this is the trajectory of contribution rates in the plan,” says Mark Prefontaine, assistant deputy minister for financial sector regulation and policy with the government of Alberta. He says that one of the big inequities in the plans has been incentives, or subsidies, for early retirement.

With regards to the proposal, the early-retirement age rider is among the biggest changes, in Prefontaine’s view. The next, he says, is moving from a guaranteed cost-of-living adjustment, which presently uses 60 percent of Alberta inflation as a benchmark, to a target COLA at 50 percent of Alberta inflation. But under the proposed plan, any newly established board of trustees could opt for a COLA of less than 50 percent should it be determined that the adjusted rates do not accurately reflect changes to inflation. In other words, once the pension reform goes into effect, deferred members and retirees will carry more risk in terms of the plan’s funding. Another proposed reform is a moratorium on benefit improvements until 2021.

Alberta finance minister Doug Horner is expected to introduce the pension reform legislation during the spring of 2014. If the legislation passes, the new rules would become effective on January 1, 2016. As for AIMCo, which in addition to public pensions also oversees government-mandated funds and endowments, it hopes it can persuade its present roster of pensions to keep their funds under the crown company’s domain. “If it’s all about logic and finance, I should be able to make that case,” says de Bever.

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