From the 2010 Actuarial Report of the RFPP (available at
http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?DetailID=502 )
RFPP Fund Liabilities = $155,700,000
RFPP Fund Assets = $233,300,000 (149.8% of liability)
RFPP Fund Surplus = $77,600,000
So what created this surplus of nearly 50%?
There are five sources of "income" for the fund
1. Member current year contributions;
2. Employer Current Year contributions (between $1.71 and $1.74 for each member $1 for 2007-2010 IAW the 2008 Actuarial Report);
3. Member Past Service contributions;
4. Employer Past Service contributions (approx $1 to each member $1); and
5. Investment Returns.
Investment returns: Total investment return from CIF to 31 Mar 10 is about $6,000,000. The report expects long term real returns at a rate of about 4.2%. It is difficult to calculate the actual annual rate of return since CIF without more detailed information but I would estimate it at 1.75%-2%, well below the projected rate of return but not surprising given two years of negative returns and only one positive year in major financial markets. It is clear however, that great investment returns did not create this surplus. If anything the weak returns should result in a deficit of $6-10 million.
So the surplus is clearly a result of over contribution by members and the employer.
Current Year contributions for members are at about the same rate as for other federal plans and the employer contribution rate for the RFPP is significantly lower than for other plans so if this was causing the surplus the other federal plans would be in a worse (better?) surplus situation since they have a higher rate of employer contribution. This is not the case. There is nothing to indicate current year contributions had a significant impact on the surplus
This leaves prior service contributions as the main culprit in creating this large surplus. More specifically the seven percent compound interest has generated far more money than is needed to actually fund the prior service benefits being bought back.
Regardless of how much of the surplus came from current service and how much from prior service it is clear that members' over contributions account for a significant part of the surplus. I estimate that at least $21,200,000 and perhaps as much as $38,800,000 of this surplus came directly out of the pockets of Reservists. I suspect it is closer to the higher number since the prior service ratio is about one employer dollar to each member dollar.
So what happens to this surplus?
By law anything greater than 20% above liabilities is considered a non-permitted surplus. The government can take this money, including the portion contributed by members, and either throw it back into general government revenue or use it to offset future employer contributions to the plan. The actuarial report assumes that the government will do the latter starting in 2013. The net effect is an indirect tax on members.
So what can be done?
Redress is not an option since the prior service election interest rate is set in regulations and is beyond the capability of any authority in the CF to change.
Complaints to the CF Ombudsman are a possibility but the 2010 report of the Ombudsman indicates it's investigation of the RFPP (
http://www.ombudsman.forces.gc.ca/rep-rap/ar-ra/2010-2011/report-rapport-eng.asp#ic-sp ) was set aside until they reviewed the Auditor General's report. The AG report basically said the plan was so screwed up that it couldn't offer an opinion on it. I doubt any action will be coming on the Ombudsman front before the government takes the surplus and even if they do continue their investigation the ombudsman report does not appear to include anything on prior service interest rate. (Note: The Ombudsman is restricted in dealing with individual pension matters but he can look into systemic issues which this should qualify as since it affects all who elect prior service.)
Direct Appeal to Parliamentarians: I believe this is the best recourse remaining if there is any hope of getting this fixed. The Governor in Council has the power to amend the regulations and make it retroactive. Up until now we had only opinion that we were being overcharged on prior service elections in regards to the sustainability of the plan (as opposed to overcharged in comparison with other plans which was blatantly obvious). The 50% surplus in the actuarial report is the smoking gun that shows members (and taxpayers for that matter since employer contributions are based on member contributions) are being massively overcharged on prior service elections. The remedy should be to reduce the interest rate retroactive to CIF. I don't think this necessarily means the four percent rate stated in the CFSA but a rate that produces assets that more closely matches the liabilities and is sustainable. TB/DCFPS would have to look at the numbers but my guess is it would come out closer to the four percent in the CFSA than the seven percent in regulations. Personally I am starting with the President of Treasury Board (who owns the regulations), the MND and my local MP. If I don't hear anything in a reasonable time I will move on to the opposition TB/Defence critics, the Senate Committee on National Security and Defence and anyone else I can think of. Hopefully others who read this forum will also raise the issue with the Ministers and their local MPs and raise the visibility of the issue.
Will it work? I am not holding my breathe but nobody at DND has shown any interest in standing up for Reservists on the issue so the only hope is to do it ourselves. No action guarantees failure.
