January 19,

1995 PUBLIC

ACCOUNTS COMMITTEE

The Committee met at 9:30 a.m. in the House of

Assembly.

MR. CHAIRMAN (Windsor): Order, please!

We have two members not present. Mr. Hewlett will

not be here this morning. He has advised me he is busy on more pressing matters,

and the Clerk is gone to check to see if Mr. Oldford is here.

Let me first of all introduce the Committee. My

name is Neil Windsor, MHA for Mount Pearl and I chair the Committee. Mr. Melvin

Penney from Lewisporte to my right is the Vice-Chair, Mr. Oliver Langdon for

Fortune - Hermitage, Mr. John Crane for Harbour Grace, and Mr. Glen Tobin for

Burin - Placentia West. As I said Mr. Doug Oldford for Trinity North will

hopefully be here shortly. The other member is Mr. Hewlett for Green Bay but he

will not be with us.

First of all on behalf of the Committee let me say

to Mr. Crane a word of sympathy in the tragic death of his niece a few days ago

in a snowmobile accident in Labrador. Mr. Crane was not with us for the hearings

yesterday because of the funeral. On behalf of the Committee, Mr. Crane, we

express to you and the family of your niece our deepest sympathy. It is good to

have you back.

Let me welcome the witnesses who are here and, and

first of all get some details out of the way. I ask you to speak clearly into

the microphones so that Hansard can record everything. As you probably know, and

Mr. Gill knows for sure because he has been here before, maybe some of the

others have not, that this is an extension of the House of Assembly. It is a

Standing Committee of the House of Assembly, probably the most senior committee.

We operate under the rules of the House of Assembly although we are not quite as

formal. We are having some coffee brought in for us in a moment which you are

not allowed to do in the House. We will have a coffee break at around 10:30 but

if you want to go out and get a coffee or go to the washroom by all means feel

free to do so. Take off your jacket if you get too warm.

We operate a little more casually than in the House

of Assembly but the same rules of order apply. Witnesses who have not been here

before will be sworn in momentarily by the Clerk and will give evidence under

oath. We are simply here to gather evidence. We are neither judge or jury. We

are simply here to obtain evidence and report to the House of Assembly. We are

not here to make any decisions or to judge any actions that may or may not have

been taken.

I ask you to speak clearly into the microphones. I

will normally identify each speaker before they speak but if I fail to do so

please identify yourself for the benefit of Hansard. They can pick up our voices

because they hear us every day but for new witnesses it is a little more

difficult for Hansard. I do not see any members of the news media. This is a

public meeting, of course, and members of the public and the news media are

certainly welcome to be here.

Before we get in any further let me first ask the

witnesses to identify themselves, and perhaps I will ask first the Auditor

General, Ms Marshall, if she would identify the people who are with her this

morning.

Ms. Marshall.

MS. MARSHALL: Thank you, Mr. Chairman.

To my immediate left is Mr. Bill Drover, Audit

Principal with the office, and to my far left is Mr. Tony Roestenberg who is the

audit senior with the office, most responsible for the audit of the Pooled

Pension Fund.

MR. CHAIRMAN: Thank you very much.

I see Mr. Gill, the Deputy Minister of Finance.

Perhaps, Mr. Gill, you would introduce the people you have with you this

morning?

MR. GILL: Mr. Chairman, we are representing the

Department of Finance. I have Mr. John Bennett, the Assistant Deputy Minister of

Debt Management and Pensions, and myself. Mr. Ron Williams from Treasury Board

will introduce the people from his department.

MR. CHAIRMAN: Mr. Williams.

MR. WILLIAMS: Mr. Chairman, my name is Ron

Williams. I am the Director of Government Accounting from Treasury Board. With

me is Dave Hill, Manager of Accounting and Research, and Beth Norman-Mealey,

Accounting Research Specialist with the division.

MR. CHAIRMAN: Thank you very much. Before we

proceed any further we have two sets of minutes from yesterday's hearings. Do we

have a motion to adopt those two sets of minutes?

On motion, minutes adopted as circulated.

MR. CHAIRMAN: Now if the Clerk would be kind

enough to swear in those witnesses who've not been here before and have not been

sworn. Anybody who had previously been here is deemed to be still under oath -

who has been here this session, I think. It dies with each session of the House

of Assembly. I don't think you've been here this session, Mr. Gill.

SWEARING OF WITNESSES:

Tony Roestenberg

John Bennett

Gilbert Gill

Ron Williams

David Hill

Beth Norman-Mealey

MR. CHAIRMAN: Thank you very much. Let me also say

for the benefit of the witnesses that you may direct a question at Mr. Gill or

Mr. Williams or Mr. Bennett. Feel free to ask somebody else to respond on your

behalf. If there are detailed answers that you don't have you can take notice of

that and provide the information later. We are not putting you on a hot seat in

that respect either.

Perhaps we will proceed. As normal I always give the

Auditor General an opportunity to introduce the topic if she wishes and make

some opening comments. Ms. Marshall.

MS. MARSHALL: Thank you, Mr. Chairman. The items

on the agenda this morning relate to the Province's Pooled Pension Fund. Last

year we did a review of pensions and we made several recommendations. Basically

I've just categorized them into three types of issues.

The first set of recommendations I made related to the

reporting and accounting for pensions in the Province's financial statements.

The second recommendation that I made related to having actuarial reviews

conducted every three years as required under the Pension Benefits Act

regulations. The third issue that I raised with the government was relating to

the Pooled Pension Fund's unfunded pension liability. Last year there was a

significant increase and it now stands at approximately $2.364 billion as of

March 31 1993. I recommended that government develop a plan for addressing the

pension liability because of its magnitude.

Thank you.

MR. CHAIRMAN: Gilbert, do you wish or, does

somebody else wish to make an opening statement?

MR. GILL: Thank you, Mr. Chairman.

Just a brief comment to say that the government is

following as closely as possible the recommendations of the Commission of

Enquiry on Pensions which was set up in 1989 and did its work for several months

in that year. Government has addressed part of the problem of the actuarial

liability by increasing the contribution rates and modifying benefits, so that

the contributions are now meeting the current service costs, that is in all

cases, except the MHA plan. Government has further announced its intentions to

address the past service liability, currently $2.3, 2.4 billion, and already has

met with the committee of Newfoundland and Labrador Teachers' Association

officials to discuss this situation and that committee has met a number of

times.

The actuarial liabilities are known I think to

everyone here, and recently the government has commissioned additional actuarial

reports for the MHA plan and for the public service plan to be done in the next

few months.

MR. CHAIRMAN: Thank you, Mr. Gill.

We will proceed with the questioning and my Vice-Chair

has a couple of quick questions to lead off. Mr. Penney.

MR. PENNEY: Thank you, Mr. Chairman.

Actually, I have one very general question, and just

one, because I know my colleagues are primed and ready for action on this one.

I refer you to the Auditor General's report. It should

be in front of you, page 4. Normally, when we are given these documents, the

Auditor General's report contains thirty or forty pages but in this case we

only have five. One very simple question: When the Auditor General makes her

recommendations to you - and I am going to read them for the record.

Recommendations of the Auditor General: Government

should record its pension liability on a current basis. The Statement of Revenue

and Expenditure should include all pension related expenditures on the basis of

the value of pension benefits earned by employees during the period. Government

should comply with the provisions of the Pension Benefits Act, Regulations, 1985

and have an actuarial review performed on the various public sector pension

plans every three years. Government should monitor its pension liability and

develop a plan for addressing it over a specific number of years, and, in the

years when an actuarial valuation is not performed, an extrapolation should be

used, on an annual basis, to compute the pension liability and pension related

expenditures.

I have read that for the benefit of having it placed

into the record and I would ask you to respond, please.

MR. GILL: I guess I can start off simply by saying

that in dealing with the five recommendations today - I guess basically

recommendations 1, 2 and 5, we will try to keep the responses there, the

Treasury Board people will be responding, and recommendations 3 and 4 will be

more in the Department of Finance area and we will be responding to that. That

is the way we will try to keep it.

I think we certainly, as a general statement, at the

outset the Department of Finance agrees basically with the two

recommendations: government should comply with the provisions of the pension

benefits act, regulation 85, and have an actuarial review performed on the

various public sector plans every three years, and also should monitor its

pension liability and develop a plan for addressing it over a specific number of

years.

In the case of the pension benefits act, it has always

been our intention to comply with the three-year rule. I guess in the years 1992

and 1993 we were basically for several months in the process of going for

requests for proposals for actuarial consultants and we fell a little bit

behind. The Public Service Pension Plan, the previous report was in 1988, and

then we came out with one for the end of December 1992. There was a lapsed

period of five years there. In the Teachers' Plan it was August 1990 and August

1993, so we did comply with the three-year rule there. The Uniformed Services'

Pension Plan, December 1988 and December 1993. Again, five years. The intention

was always to do it every three years, and now that we have the actuarial firm

on side and working for us we will be endeavouring to comply with the three

years. As I indicated earlier we've already commissioned reports for the MHA

Plan and the Public Service Pension Plan, both as of December 31 1994. We

anticipate getting those reports later on this year.

MR. PENNEY: That is the only question I have at

this stage, Mr, Chairman. I just wanted a general comment on that before my

colleagues started asking specific questions.

MR. CHAIRMAN: Fair enough. Mr. Langdon, would you

like to carry on from there?

MR. LANGDON: Mr. Chairman, Mr. Bennett.

MR. CHAIRMAN: Sorry, Mr. Bennett wanted to have a

comment. Mr. Bennett.

MR. BENNETT: To start with, when I was sworn in -

I'm embarrassed a bit - but I didn't use my name. If it is alright, the one in

the recording booth that doesn't have a name is John Bennett. Or if you wish, to

keep it technical, I can swear again.

MR. CHAIRMAN: I don't think that is necessary. I

take advice from the Clerk. I think it is close enough to be accurate. Thank

you, Mr. Bennet, for bringing that to our attention, though.

MR. BENNETT: The other two things for

clarification. Upon their appointment William Mercer Limited, who is currently

the government's actuary, immediately undertook a review of the Teachers'

Pension Plan, which is dated in August of 1993, and in the Public Service

Pension Plan, which is also dated December 1992. So what Mr. Gill is referring

to is the next stage, which is the continuing of the cycle, so we have had

actuarial reviews of those plans since 1988, as you can see from the report.

MR. CHAIRMAN: Thank you very much. Mr. Langdon?

MR. LANGDON: I have just a few questions. There is

a horrendous amount of money, unfunded liability, in all the pensions, and I

don't know if I am hearing it correctly or not, we are talking about actuarial

studies that were done in 1989.

Obviously, the problem with the Teachers' Pension Fund

and the General Service Pension Fund, these problems didn't come about within

the last three or four or five years. That has been accumulating for a long,

long time; it had to. Were there actuarial statements done every three years

back, say, in 1970, 1973, 1976, 1979, 1982, 1985, to see that the plans would

become viable, or if it wasn't done we are in the present state of this now

because nobody had red alerted it? It is just a horrendous problem. Who can

answer the question?

MR. CHAIRMAN: Mr. Bennett.

MR. BENNETT: I guess prior to about 1970, the only

actuarial reports that were undertaken was the 1964 Royal Commission on

Pensions. Obviously a review was done as part of that review, and then that was

again updated in 1967 with the advent of the Canada Pension Plan in 1966. After

that date there were periodic actuarial reviews taken in 1974, and there was one

in the early eighties; don't commit me on this, but I say around 1982.

The reason why we didn't have regular tri-annual

reviews was that the Pension Benefits Act is the act that requires us to do

that. The Pension Benefits Act is the act which regulates all pension plans in

the Province. Full activities, except for the public sector plans, of course,

for the funding divisions, are not part of the Pension Benefits Act. They are

exempted.

Government was made aware of the problems back in the

seventies. With the starting of a contributory pension system in 1967, and again

when we funded the plans in 1980 - effective from July of 1980 the plans became

funded, that is - all contributions of public servants, teachers and the like,

were paid into a fund and benefits were paid out of it. What has not happened at

this particular juncture is to address the costs and therefore the benefits

which will have to be paid relating to the pre-1980 situation and, to a lesser

extent, those costs which were not covered by these contributions between 1980

and 1990.

MR. LANGDON: Okay, so you are saying, then, that

all contributions made by the employees were put into the pension funds of 1980

onward.

MR. BENNETT: Correct.

MR. LANGDON: Can the same be said for the

government's contribution from 1980 onward being put into the pool as well?

MR. CHAIRMAN: Mr. Bennett.

MR. BENNETT: Yes, absolutely.

MR. LANGDON: So the untenable situation that we

find ourselves in now, then, is it because the rates weren't high enough that

the employees were paying into the plan?

It had to be something in order for this to accumulate

to the point where it is now, to be totally bankrupt by the year 2006. Something

had to go wrong. I don't know what it is; I am trying to find out what happened.

MR. CHAIRMAN: Mr. Bennett.

MR. BENNETT: There are two main reasons for the

current dilemma. The primary one is that contributions were not made into the

fund sufficient to cover the cost of benefits since 1980, is one thing. For

instance, during the period say from about 1980 to 1990 teachers contributed

approximately 4.5 per cent to the Teachers Pension Plan and the government

matched those amounts and they were paid into the fund. The cost of benefits

relating to that service were somewhere around 13.5 to 14 per cent, so there was

approximately a 5 per cent shortfall between the cost of those benefits and what

was actually being financed.

Prior to 1980 all pensions were paid from the

Consolidated Revenue Fund and all contributions of employees were paid into the

Consolidated Revenue Fund. Those amounts, also, including the existing public

service who had not retired, say by 1980, the cost relating to that group have

never been financed in any respect, so presumably part of an ultimate solution

is to address that particular problem as well.

MR. CHAIRMAN: Mr. Langdon.

MR. LANGDON: I have another question or two and

then I will pass it on down the line. I think in the statements that I read

going through it says that in order for the plan to remain viable we are looking

at probably 10.34 per cent by the employee and the employer in contributions. In

the teachers' plan I think it is now 6.6 or 6.8. I looked at it earlier. How

much are the teachers paying now?

MR. BENNETT: The teachers are now contributing 8

per cent to their pension plan and the government is matching that amount.

MR. LANGDON: So in order for the plan to remain

viable and not to go bankrupt by the year 2006 what is the approximate increase

that teachers and government would have to put in it to keep it viable? Have you

come to that agreement yet, or would that still be under investigation and still

being tied up between the two groups?

MR. BENNETT: That is difficult to say, exactly.

There are two things. You become viable as long as you can push the 2005 date,

as long as you can keep pushing that ahead of you, you will have sufficient

funds to meet the pension expenditure as it becomes due. I think probably the

question you are asking is, what is the level of payments that would require

that to become fully funded over a reasonable period of time?

MR. LANGDON: I do not imagine it will be fully

funded for decades to come, so the unfunded liability will not be $2 billion,

but we will see it come down to $1 billion and then probably $500 million and so

on, until you totally fund it. I guess I will not be around by the time that

happens.

MR. BENNETT: No.

MR. LANGDON: The situation is serious because

everybody in the Province that is involved in teaching, or public services, or

the Uniform Pension Plan, MHAs, or whatever - I mean it is a horrendous problem

that the government has to face as far as I am concerned personally. It is the

biggest problem that government has to face at this time, bigger than anything

else, and unless we can find a mechanism or a way to address it then we have a

tremendous number of people in this Province who could find themselves in all

kind of difficulty. It is not something that you just pass by frivolously, it is

something that is very serious and that is why, since I don't know all the

answers to it but I know Mary Galway from Mercer and Mercer, and spent some time

with her on the pension plan for the municipal employees, so I know something of

the situation which we have here, so that it really concerns me, and I am sure

the teachers are in the same situation and probably even us as MHAs, so I will

leave it at that and pass it along and probably come back to it later on.

MR. CHAIRMAN: Mr. Gill.

MR. GILL: I just wanted to say that we certainly

agree, it is a big liability, an important situation - we may have already said

this but just in case we didn't - what is happening now is, at least the level

of contributions have been brought to the level where the current services are

being covered. What is not being covered at this point is that big, past service

liability and in essence I guess, there are only two or three ways that you

could deal with that. One would be direct cash inflow of special amounts of

money, another would be by reducing benefits or a third, by increasing

contributions, so those are the sorts of things that can be done in the future

to take care of the situation.

MR. CHAIRMAN: Mr. Bennett.

MR. BENNETT: Yes. I would just like to follow up;

I hope I didn't give the Committee any impression that I am being cavalier about

a $2 billion problem.

To just get back to your question and the full

funding, if we were trying to full fund this over a reasonable period of time,

between twenty and thirty years, the contribution rates, since you addressed the

teachers' pension plans would be somewhere in excess of 30 per cent; obviously

that would full fund and that would clean the problem up once and for all; that

is obviously something that can't be truly considered. I don't think that

somebody could accept a 20 per cent deduction from their pay cheques.

What obviously will have to happen here is that there

will have to be some accommodation within that to reach reasonable funding

targets, and the only approach that sort of makes sense, is not to try to bite

the full bullet at the beginning, but to take nips at it ensuring always that

the 2006 deadline, when everything would become bankrupt as you say, is never

allowed to happen, that there is sufficient money always there to meet the

current pensioners so there is no disruption in the retired lives that we have,

and I think that is the reasoned approach that we will be ultimately taking.

MR. CHAIRMAN: Mr. Bennett, I would like to jump in

here for a moment before I move on. I have to try and put this in perspective

here because you have two problems. One is that we are not contributing enough

to meet the overall costs of the pension plan, the other one is in fact, that

the government has borrowed from the pension plan, so it is not a matter that

the pension plan itself is a particular problem, there would be two problems

really.

The first problem is that the government over the

years instead of going to Japan and borrowing money borrowed money from itself,

from its own pension plan, obviously at a far more favourable rate than we would

be paying in Japan for the same amount of money. So it is not the plan that has

the liability, it is simply another government loan. Alright? The same as if we

went to Japan, Germany or Switzerland to borrow the money. So it is the

government that has the liability, not the pension plan. The pension plan is not

the problem.

The other half of the problem is that - you know,

because the employees' contribution has gone into the plan. It is simply the

government's share. That instead of going in government had borrowed it back

each year, until 1980 we started paying a modest amount, and it has gone up

since then. So the liability is a government liability, not a pension plan

liability. The money is there on paper; the government owes it to the pension

plan.

The other half of the problem is that the amounts that

we were contributing - both government and employees - were not enough to

sustain the plan. I recall the Teachers' Plan in 1986, I think it was, when we

dealt with my good friend and colleague Fraser March and his people on that. No,

it wasn't Fraser March, it was Ms. Cowan in fact, who was president of the NTA

at the time. We made a commitment to her at the time that: We accept the

unfunded liability up until today because we as the administrators of the

pension plan were responsible for ensuring that the employee and the employer

paid enough to support that plan. We had an actuarial study done at that time

which told us we hadn't done that. That was our fault as managers of the plan,

not the teachers' problem.

We made the commitment at the time as a government

that we will accept that unfunded liability, but that the contributions must now

increase to a level that will support what we need to put in from now on to

support the plan. In other words, the teachers are paying half, the government

pays half. We have to pay enough to support whatever will build up in the

future.

Mr. Bennett, you made a statement that we would have

to pay 30 per cent, or teachers would have to pay 30 per cent. You aren't going

to ask teachers in the future to pay back the unfunded liability that government

has incurred because they borrowed from the pension plan. I hope that isn't even

being considered, because that is so far out to lunch as being unreal. Alright?

We made a commitment obviously to the teachers that we would accept the

liability up until 1986, I believe it was, 1986, 1987 - Mr. Gill, I don't know

if you remember exactly, I remember the meeting in the new Treasury Board

boardroom down in the east wing. We have to ensure - and the teachers and other

employees are equally responsible - that what is paid in from now on is enough

to support the plan and the liabilities that are building up. You can't expect

employees now and in the future to pay back what government has borrowed from

their pension plan because we didn't put in our share. It is as simple as that.

There are two problems here. I'm going to let Mr. Gill

respond first, Mr. Langdon.

MR. GILL: Mr. Chairman, I agree. Prior to 1980 it

would be certainly fairly clear that the government didn't put in either the

contributions of the employees or their matching share. They didn't put it in at

all. After 1980 of course to the extent that the contributions weren't enough,

then of course that is, if you like, a liability of the employees of the day.

The contributions were simply not enough to cover the current service cost.

MR. CHAIRMAN: But we already made that decision

that it isn't their responsibility. It is government's responsibility, because

we decided how much they should have paid in and how much we should have paid

in. If we said: You pay in 6 per cent and they should have paid in 8 per cent,

then we have the responsibility for that 2 per cent. We are the managers of the

plan.

MR. GILL: Yes. I'm -

MR. CHAIRMAN: Okay, sorry, I interrupted you. Go

ahead.

MR. GILL: I'm simply making the distinction

between prior to 1980 and after 1980. Prior to 1980 nothing went in there from

governments or employees. After 1980 everything went in. The contribution amount

and the employees' contribution and the employer's contribution, simply wasn't -

the contributions weren't enough. Of course, that wasn't corrected until in

recent years, since 1990, that the current service cost....

I might just comment too - and I know Mr. Bennett can

certainly comment for himself - but with respect to the 30 per cent, I think he

was simply responding to Mr. Langdon's question about what it would take.

Obviously that isn't being considered by anyone.

MR. CHAIRMAN: No, I didn't want to leave it on the

record though. I wanted to make it clear.

The bottom line here is, as I've already said - and I

don't want to repeat myself - is that it isn't the employee, it isn't the

pension plan that has a problem here. It is the Department of Finance - okay? -

that has borrowed money from the pension plan, simply because we didn't put that

money in. Even prior to 1980 deductions were taken from employees' pay cheques.

We just didn't put it into a fund, is that correct?

MR. GILL: That is correct.

MR. CHAIRMAN: Prior to 1980 we not only borrowed

what we would normally put in, we borrowed what the employees were contributing.

So we collected from the employees. Instead of putting it into a trust account,

or the pension sinking fund.

MR. GILL: Yes, the governments of the day just -

MR. CHAIRMAN: We took that back.

MR. GILL: - simply used it to build hospitals and

roads and (inaudible).

MR. CHAIRMAN: Simply used it, rather than

borrowing somewhere else. In other words, you have to consider that through all

of this time, ever since the pension plan was started, the pension plan has been

building up on paper but government has been borrowing it back. Government owes

the pension plan. It isn't the pension plan that wasn't funded. It probably

wasn't funded enough, but what I'm saying is that 75 per cent or 80 per cent of

the problem is that borrowing problem of government. Maybe 20 per cent or 25 per

cent is an underfunded problem of the pension plan.

Which again is government's problem. Because we were

the managers of the plans. At least up and until, for example, 1986 when we sat

down with the teachers and said: From now on we are equally responsible, we have

to pay 50-50, and here is your choice. Okay? You either pay it or we reduce the

benefits that you are accruing, because we can only give you benefits in

accordance with the amount of money that we are putting in here. Government will

put in our share and you have to put in yours.

The problem is not a pension plan problem totally.

There is a component that is. The problem is the fact that we've borrowed from

the pension fund. That is all it is. Alright? To say we are going to reduce

benefits of those who've paid fifteen years ago, whoever paid in whatever

amount, we were the ones that told them: Here is what you will pay in and here

is the benefit that you will receive from it in fifteen years' time or thirty

years' time when you retire. To even suggest that we are going to reduce that

benefit that they have purchased on contract is crazy in my view, and I hope we

are not suggesting that.

You can reduce what benefits one might build up in the

future. You have two choices starting as of today. Once you identify your

problem you say: if we are going to have the same level of benefits then we have

to pay more and if we do not want to pay more then we reduce the benefits that

you build up from now on, but you cannot reduce benefits that have accrued up

until now.

Would you like to respond to that and tell me if I am

nuts?

Mr. Gill.

MR. GILL: I just say, Mr. Chairman, that the

intention to meet and discuss with the teachers in a formalized committee, that

is taking place, and since it is mainly the teachers plan that has the biggest

problem and the one to which you referred, we will just have to see what comes

out of that process, whether or not what can be negotiated as to the methods or

means of attacking this problem. What I was simply doing was saying there are

only two or three ways you can do it, and what way it will be done I do not

know, obviously.

MR. CHAIRMAN: Can you tell me -

MR. PENNEY: Mr. Chairman may I interject for one

second?

MR. CHAIRMAN: Let me ask one more question. Mr.

Langdon has been hanging there so I have to get back to him.

MR. PENNEY: Well, I cannot let some of your

comments go unchallenged.

MR. CHAIRMAN: Okay, but let me ask this question

first.

What percentage of the problem with the Teachers

Pension Plan is a problem caused by the fact that we borrowed from the plan and

what percentage is a problem because the teachers and government did not

contribute enough because we had underestimated what the cost of the plan would

be? There are two different problems.

MR. BENNETT: The problem would divide itself about

one third/two thirds, meaning one third would be the problem caused by the pre

1980 situation which meant that government took the contributions of teachers,

did not make any contributions of its own, and paid less paid benefits. That

figure would be somewhere around $300 million if you extrapolate it out plus

interest at today's dollars.

Just now I got an aura in here to sort of dampen your

argument a little, Mr. Chairman. In 1979 the teachers, who have a unique plan as

you know, entered into an agreement where no changes to the teachers plan could

be done without the consent of the NLTA, so to take your argument that they

should assume little, if any responsibility for the past service liability in my

view does not hold water, and this is a personal opinion and not that of

government, because once you accept equal responsibility with somebody else for

a particular action then you are equally responsible. So government could not

take any action to modify benefits or to increase contributions since that date,

unilaterally, but would have to have this thing discussed, verified and ratified

by the NLTA. They, in my view, also have to accept part of the responsibility

for the consequences.

MR. CHAIRMAN: Are you suggesting that they should

have had an actuarial study of their own done to see if the actuarial study that

government had done, that decided: Here is what you should pay, if that

actuarial study was accurate -

MR. BENNETT: No.

MR. CHAIRMAN: - and that they were actually paying

enough?

MR. BENNETT: No, we've had that and we've always

had agreement with them. What I'm suggesting here is that government shouldn't

have to stand and absorb the full weight of something if it has another partner

that has an equal say in how things are going to be run.

MR. CHAIRMAN: Except that one partner is

determining how much you pay.

MR. BENNETT: No. In the case of the NLTA no

changes - none whatsoever -

MR. CHAIRMAN: No changes were made without their

consent. You can't do anything without their consent in that agreement.

MR. BENNETT: Yes. So if we look at it from the

other side, if therefore you give me the right to veto any action you take, I

also must accept responsibility for if I do veto with whatever the consequences

are. What the relationship between who should accept what, that is certainly

very much in the air. It doesn't put the full onus for the past service

liability, in my view, solely on the shoulders of government.

MR. CHAIRMAN: Thank you. I'm not sure I totally

agree. Mr. Langdon?

MR. LANGDON: Is it possible now to borrow from the

Teachers' Plan or the Public Service Plan, to build hospitals and roads and

stuff like that? Is it still possible for government to do that if they wanted

to? To borrow from the plan?

MR. GILL: No, it isn't.

MR. LANGDON: When was it stopped? When was that

regulation changed then to prevent that from happening?

MR. GILL: When the funding was brought in in 1980.

When we started funding the plan in 1980, July 1 1980.

MR. LANGDON: Okay, thank you.

MR. CHAIRMAN: Perhaps I could just clarify that

for you, Mr. Langdon. It is possible to do it, we just stop funding. Alright?

There is nothing stopping us from doing it, but it wouldn't be wise to do. We

just decided that we have to fund the pension plan and stop borrowing that money

to build roads and hospitals, that is all.

MR. GILL: Yes, it is certainly physically possible

to do it, but certainly the policy has been and will continue to be: No, we

can't do it.

MR. CHAIRMAN: Thank you. Are you finished for now,

Mr. Langdon? Can I go to Mr. Penney?

MR. PENNEY: I just want to make a comment. I was

listening to our Chairman here say that the problem that we are experiencing

today is as a result of the government borrowing from the plan, and Mr. Gill was

saying: Yes, government borrowed from the plan and used the money to build

hospitals and roads. I also recognize the comment that Mr. Windsor used: We as

government and managers of the plan.

I would like to compliment him on his powers of recall

when he says we and government and managers of the plan borrowed from the plan,

created the mess that we are in. I would like to remind him that yes, he is

absolutely correct. It was the government of the day of which he was a part.

MR. CHAIRMAN: I didn't say I wasn't.

MR. PENNEY: I would suggest that Mr. Langdon asked

the correct question, the last question he asked: Is this happening today? Mr.

Windsor says that: No, but it can.

MR. CHAIRMAN: Yes.

MR. PENNEY: Let's hope that the government that

did those kinds of things back in the 1980s never gets back there to do it

again. Because Mr. Windsor admits that yes, this can happen again.

MR. TOBIN: Point of order, Mr. Chairman.

MR. CHAIRMAN: Order please, Mr. Tobin. Let Mr.

Penney finish. Then I will... Are you finished, Mr. Penney?

MR. PENNEY: No. Mr. Gill, is the government of

today, as opposed to the government of the day, involved in the same kinds of

actions that we have just had described to us over the last few minutes, of

borrowing from the fund to build hospitals and roads. Is that happening today?

MR. CHAIRMAN: Mr. Gill.

MR. GILL: No, Mr. Penney, it hasn't happened since

July 1, 1980.

MR. CHAIRMAN: Mr. Tobin.

MR. TOBIN: Mr. Penney - and I just say it for

clarification, because if he wants to challenge, and sit down here and

pontificate, and do all that kind of stuff, he has to be challenged as well, and

the Chairman acknowledged the governments. The officials said that it stopped in

1980, I think it was July 1, 1980, and it didn't happen since.

For the member to then refer to the hope that the

things that the governments did in the eighties do not continue now, I don't

think that is really correct and should not be allowed to stand on the record.

It stopped as of July 1, 1980. It was the governments of the sixties, from 1949

to 1980, that created the mess it is in today, not the governments of the

eighties or the government of the nineties.

MR. CHAIRMAN: I might just say in my own defence,

Mr. Penney, to your non-issue, Mr. Tobin has pointed out quite correctly that it

was 1980, the year that I was President of Treasury Board, that we started

funding the pension plan, I say in my own defence. Thank you very much.

Mr. Crane, would you like to carry on, Sir?

MR. CRANE: No, I don't think so, Mr. Chairman. I

would just as soon pass this morning, if you don't mind.

MR. CHAIRMAN: Mr. Tobin.

MR. TOBIN: I listened with interest to what Mr.

Gill had to state in his opening comments. Certainly the questions and the

dialogue that took place between you, Mr. Gill, and Mr. Langdon, the teachers'

plan seems to be the one that everyone is overly concerned with, but what about

the general service? You were talking about 2005 for the teachers, and things

such as that. Where is the situation regarding the general service, the one that

I was a member of for ten or eleven years? Is that still... Oliver got his; I

haven't got mine yet.

MR. CHAIRMAN: Mr. Gill.

MR. GILL: The general service plan, in accordance

with the latest actuarial cash flows, I think, goes out to about 20/20 before

there is any problem. It is about 40 per cent funded. The teachers', on the

other hand, at this point, is about 18 per cent funded.

MR. CHAIRMAN: Mr. Tobin.

MR. TOBIN: Are the public servants now paying

enough to fully fund their pension?

MR. CHAIRMAN: Mr. Gill.

MR. GILL: The public servants are paying enough to

cover the current service costs, but not enough to cover the past liabilities.

MR. CHAIRMAN: Mr. Tobin.

MR. TOBIN: What is the liability situation with

that? Is it very high, in terms of the past?

MR. CHAIRMAN: Mr. Gill.

MR. GILL: The actuarial liability is about $1.1

billion for the public service plan which is, as I say, about 40 per cent

funded. The liability is about two-and-a-half.

MR. TOBIN: Unlike the Uniformed Services Pension

Plan?

MR. GILL: The Uniformed Service Pension Plan has

no fund attached to it; it is basically being supplemented by government each

year. It is a small plan but there aren't any credits at all in the pension fund

for the Uniformed Services.

MR. TOBIN: What was the agreement they had a few

years ago when they paid, or agreed to pay a significant amount of money in or

something like that?

MR. GILL: Yes. Perhaps I will ask Mr. Bennett to

respond to that; he was very much involved in the process. This is the Uniformed

Services Pension Plan.

MR. BENNETT: The difference with the Uniformed

Services Pension Plan is, they had relatively generous provisions compared to

most public sector plans in Canada and certainly our Public Service Pension

Plans and the Teachers Pension Plan.

We negotiated and also arbitrated because it basically

has three services in it, the police, correctional officers and at that time,

the fire department. As a result of those deliberations, we actually closed off

the more generous benefits in allowing those people with nineteen-plus years of

service to continue if they so wished in the old arrangement, which would allow,

for instance, an individual after twenty-five years to retire on his calculated

pension.

The newer members who joined that and anyone who had

less than twenty years of service was moved to another plan, essentially which

is somewhat similar to the public service plan with, I guess, one exception,

they can still retire voluntarily after twenty-five years of service. We

calculated the current service costs in both those plans, that I can call them,

or provisions, separate provisions of one plan, and as part of the deal we did,

is that, employees in both groups would cover one-half the current service

costs, and as a result of that the average contribution for instance for a

senior plan member, who elected the old provision is around 11 per cent of

salary; that is matched by government and the younger plan or the younger plan

members, it is about 8 per cent. It averages out actually to be about 7 per cent

matched by government.

Now the trouble with that is that the relationship -

there are more people retired almost than there is active in that because people

will be retiring at ages forty-five and fifty, and obviously living to the

standard ages and as a result of that there is still the problem of addressing

the past service costs and that is all part of government's ongoing review with

how it is going to address the ultimate $2.3 billion liability; but that plan

again has approximately, to give you some idea, the plan has about 1,100

members. The teachers and what makes it so important in our deliberations is not

only the 2005 target date, which is really coming up at us - I mean, it is ten

years away - is there is about 8,000 active teachers. The public service group,

which has a similar scope of liability, about 1.1 billion, has 26,000 members.

You can see that the teachers, because of the imminence that we are looking at -

ten years to correct the problem, to push off the 2005 date - is certainly the

most important one we can deal with.

Right now government is paying about $5 million in

deficiency payments to cover the shortfall between the payrolls and the

contributions for the Uniform Services' Pension Plan. It has been dealing with

that ever since the inauguration of that plan which is about 1949, as you've

said, or 1950. That is being dealt with and it is incorporated into its budget

structure. Obviously if we have a major disruption in the Teachers' Pension Plan

in 2005 the order of magnitude goes from somewhere around $14 million in 2006 to

about $185 million, $183 million by 2010 in payments that obviously aren't

incorporated into any budget struck.

That is what is making the teachers' problem I guess a

senior focus that we are hearing in the press today.

MR. TOBIN: Do the teachers have anything in their

contract that deals with the amount that they pay into their pension plan? I

don't know a whole lot about it, to be honest with you, but what I'm thinking

about is the stacking with Canada Pension. It is my understanding that the

teachers have some sort of a guarantee. Are they the only plan that has this

guarantee that they can continue to stack Canada Pension with their pensions,

or...?

MR. GILL: In their collective agreement they have

a clause that says no changes can be made to the plan without their agreement.

With respect to the stacking, yes, they are the only plan that has that

stacking. It has been there in -

MR. TOBIN: Would you explain that a bit for me Mr.

Gill, please? What the stacking really means.

WITNESS: (Inaudible).

MR. GILL: Yes. The MHA Plan as well, Mr. Bennett

points out, has the stacking. It simply means that when a teacher retires he

will receive his pension in addition to receiving the Canada Pension. With the

Public Service Pension Plan it is an integrated plan. When you start to receive

your Canada Pension the amount of your public service pension is reduced

accordingly. That is the difference between - stacking is just stacked on top -

MR. TOBIN: Yes.

MR. GILL: -

whereas integrated, it is integrated

into the total amount that you receive.

MR. TOBIN: Social services, because of the

allowable and non-allowable income.

MR. CHAIRMAN: (Inaudible) -

MR. TOBIN: Okay, just one -

MR. CHAIRMAN: Is our plan stacked then? Are these

plans stacked, or - that is not a deductible (inaudible) Canada Pension, is

there? From these plans?

MR. BENNETT: We have two plans that are what we

call now integrated plans, and they are the Public Service Pension Plan and the

Uniformed Services Pension Plan, and both those, when people become eligible and

actually apply for - they can become eligible at age sixty - but when they apply

for benefits we will reduce the provincial portion of the total pension package,

obviously, by a formulated amount which offsets that.

Now the reason for an integrated plan is worldwide,

because when they brought in the Canada Pension Plan in 1966 a lot of employers

were already making meaningful contributions towards a pension system which

provided people with good retirement incomes, and they said: Now you Government

of Canada are starting to foist this extra plan on it and we don't want to deal

with it. So to get around the combination of two plans they set up this

integrative formula which would tell that employer that the contribution, that

his total pension expense, as it were, would be roughly the same after the event

as before, so these were introduced in two of the plans, and this was the reason

for the 1966, which was reported in 1967, Royal Commission on Pensions, to see

the impact on government pension plans of the Canada Pension Plan situation.

As a result of that, two of the four plans that we are

discussing here today, which I just alluded to, are integrated, and the other

two, which are the teachers and the MHA plan, are stacked, which means that

whatever pension benefits you earn in retirement from either of these other two

plans will continue, regardless of what the situation is with the Canada Pension

Plan.

MR. CHAIRMAN: Obviously, therefore, the

contribution level for the other two plans that are integrated would be lower

because your benefits are less, right?

MR. BENNETT: Yes, exactly right. The current

service cost to the Public Service Pension Plan, for instance, is approximately

10 per cent. The teachers, the base plan, they also have this thirty and out

provision that a lot of you may have heard, but what we call the base plan

benefit is approximately 12 per cent, and the reasoning is basically - there are

other factors that go into that - but basically it is the integration factor.

MR. CHAIRMAN: Thank you. Coffee and muffins are

available in the Government Common Room. We will take a fifteen minute break and

come back again. Everybody is invited to come in, of course.

Recess

MR. CHAIRMAN: Order, please!

I will now call the meeting to order; just about

everybody is here. We will carry on with the questioning. Mr. Langdon, would you

like to begin?

MR. LANGDON: I have a couple of questions here. In

the notes that we have, I don't see the unfunded liability in the Uniformed

Service Pension Plan and the MHA's plan. Do you have these figures available of

what the unfunded liability is in these two?

MR. CHAIRMAN: Mr. Gill.

MR. GILL: The unfunded liability of the MHA plan,

as of December 31, 1988, is $24.8 million.

MR. LANGDON: In what year was that again?

MR. GILL: That was based on 1988, $24.8 million,

and the Uniformed Services plan based on - yes, that was 1988 as well - $129.7

million. Now there has been another actuarial report done on the uniformed

services, but that hasn't been tabled in the House yet.

MR. LANGDON: Okay. The other question I would like

to ask is: we are talking about the integrated plan for the general service

union of the Province, if the teachers' plan was unified rather than stacked,

the emergency date right now is 2006, what would that do to it or would it help

the plan in any way at all?

MR. CHAIRMAN: Gilbert Gill.

MR. GILL: It certainly would help. I am not sure

if we know exactly how far that one thing would put it out but I will see if Mr.

Bennett knows.

MR. CHAIRMAN: Mr. Bennett.

MR. BENNETT: We would need to break the problem if

you set it for all future service. You see the unfunded liability is for -

MR. LANGDON: Yes, for all future service, that's

what I mean.

MR. BENNETT: Yes. What you are basically doing is

reducing the future cost of the teachers' pension plan; you would take it down

from roughly 12 per cent to approximately 10 per cent, so I guess, by inference

you are saying if you left the contribution rate at the same level that would

represent about a 2 per cent contribution into the pension plan and would

probably take the plan from 2006 to about 2007 or 2008. The major problem with

that plan is the size of the unfunded liability which is $1.2 billion, and the

fact that you have only approximately ten years to deal with the cash flow

crises that could occur in the year 2005, so you need a greater injection to

that (inaudible).

MR. CHAIRMAN: Mr. Langdon.

MR. LANGDON: Just one more question and it is

probably just routine, probably it is not worth asking but I would like to, just

for personal clarification.

On page 43, of the notes that we have given us, I am

looking at the magnitude of the unfunded liability of the General Services

Pension Plan. Basically what it says on the valuation date December 31, 1992,

the unfunded liability of $1.05 billion represented about 129 per cent of

members' earnings or more than one year's salary for each active member; and

then it goes down by the year, 200 per cent 2004; 370 per cent in the year 2020.

Now, if we come to page to 55, we see at least,

roughly, 2.5 per cent I guess without corrective action. The deficit will

increase to over 400 per cent of teachers' earnings by 1996 and to over 800 per

cent by the year 2006, right? For want of a better word, why is the teachers'

pension unfunded liability out of sync with general services, because it is

much, much more and the numbers are fewer,

whereas in the public service I guess

you have more people contributing into the plan and the amount coming out is not

as great. Why is the problem so pronounced in the teachers' plan versus the

other pension plans?

MR. BENNETT: If I can respond to that, Mr.

Chairman. There are about three or four major factors that would go into this.

What we concern ourselves with is not really the cost at this point, but it is

the cash flow that would be required to keep it going.

The first one is the timing of the pensions. We've a

far more significant increase in the pensioner population between now and the

year 2005 than we do in the Public Service Pension Plan. If you can recall,

historically in the early 1960s when education was such a thrust and a lot of

those people were hired, far more on average than had been previously, those

people are coming up to retire and there is going to be a tremendous number of

teachers retiring around the turn of the century. So we will have more people

drawing on the fund.

The second thing is that the average pension of a

teacher is far in excess of that of a public servant. In this report

summary you

can see that around $44,000 is the average salary for a teacher. The pension is

presumably somewhere around $40,000. The public service is closer to around

$15,000 or $20,000, I'm not sure which, and I would have to refer to the report.

The order of magnitude is that great. It is almost a doubling.

So you have a greater number proportionately of

teachers retiring, you have larger pensions, and equally as important is the

base of contributions is on an 8,000 teacher base, while the public service is

on 26,000. When you take all those factors together you get the type of

avalanche that you are seeing happening in the Teachers' Pension Plan.

MR. LANGDON: Okay. I will leave that for now.

Thank you.

MR. CHAIRMAN: Mr. Crane? No further questions from

you? Mr. Oldford? Mr. Tobin? Mr. Penney, sir.

MR. PENNEY: Thank you, Mr. Chairman. Just a

general question. We recognize that the pensions' unfunded liability is probably

the most serious problem facing government today. That has been stated here this

morning. I think that is probably an understatement. The figures we have in the

information we've been given shows that as of March 31 1993 the unfunded

liability is $2.36 billion. At the time that the benefit payments will exceed

cash contributions will be in the year 2009, if I read the information

correctly; and the time at which the fund has absolutely no assets at all is the

year 2020.

Could you tell me whether this situation is unique to

Newfoundland? Can you tell me what the situation is in the other Canadian

provinces? Have any of the other provinces experienced the same kind of a

degrading of the pension fund that we have? Do they have the same problem with

the unfunded liabilities, or is this just unique to our Province?

MR. GILL: It really varies across the country. I

think it is fair to say that there are several provinces that are either fully

funded or close to it. There are some provinces that have what we sometimes

refer to more as notional funds than anything else and is basically debt owing

from the province to the pension fund that they hold in the pension fund. There

are one or two provinces like that.

MR. PENNEY: As a result of them having borrowed

from the pension fund?

MR. GILL: What they would say is whatever the

liability is in a particular year they would put a bond of the province in the

fund and say - if it is $1 million they would put a $1 million bond in the fund

from that particular province owing to the fund and when the due date comes the

province would pay it to the fund.

MR. CHAIRMAN: Did we not just pass legislation

that provides for this Province to do just that, before Christmas?

MR. GILL: To?

MR. CHAIRMAN: To provide that the Province can

issue a bond to the pension fund, or is that something different? Maybe I am

confused.

MR. GILL: No, that is similar, except in our case

it would be a small portion of the total as opposed to some provinces where it

is the way they do it.

MR. CHAIRMAN: I am just trying to find out what

legislation we put through. We put a bill through that did something like that

the last day the House was sitting.

I am sorry. I did not mean to interrupt. Carry on.

MR. GILL: The federal government is basically like

that as well, as I understand it. For example, in the case of Nova Scotia their

public service pension fund is in good shape but their teachers fund is not so

good. I think, and I will ask Mr. Bennett to add to it, but I think possibly of

the ones who are trying to actually fund it in actual investments we probably

have the biggest problem, of those who are actually funding it in investments in

stocks and bonds.

John could you add to that?

MR. CHAIRMAN: Mr. Bennett.

MR. BENNETT: Just to give you an example of what

we are talking about here. The province of Manitoba has decided to approach the

problem to say: we will take all employees contributions, and have since

basically day one, and place them into a fund and the fund is invested in what

we call marketable securities. In other words it is a true fund and when the

pension comes up for payment half of it will be paid from the pension fund

because it represents in this case the public service contributions, and the

other half is paid directly from the consolidated revenue fund, so there is an

unfunded liability, for instance, in the province of Manitoba relating to half

the pension obligations that they are actually paying for on a pay as you go

basis, so as the demands are made the payments are made. The province of Ontario

up until about four years ago had what I call paper funding and that means the

old poker game approach, when you are on your face, you know, I pay IOUs. Up

until that date everything that went into a pension fund was a non-negotiable

note and as a result of that they were fully funded. Theoretically, as you and I

know, IOUs sometimes cannot be paid.

Since that date, what they are doing now is actually

retiring a portion of those notes as well as putting all new contributions into

a proper pension fund which is invested in marketable securities. So there is a

full range but I guess where we are different is that even looking at that, most

other public sector pension plans, teachers in public service are at least 50

per cent funded. So their problem is far less, they have far more resources to

deal with. I mean Ontario has a tremendous private sector so there are a lot

more ways that they can look at to correct the problem in the future than say

the Province of Newfoundland.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: `Pay as you go.' That is a system

whereby tomorrow's employees will contribute to the pension for yesterdays

retired employees, is it?

MR. BENNETT: Yes, the buzzword is called,

inter-generational transfer.

MR. CHAIRMAN: The same as support payments.

MR. PENNEY: The borrowing from the pension plan by

government to construct roads and hospitals and those kinds of things, was that

unique to Newfoundland or did other Canadian provinces do the same thing in the

'70s and '80s? Are we the only province doing that?

MR. BENNETT: I think we should clarify that point

because it is important. The difference between the Province of Newfoundland say

and Ontario, to use that situation in the '70s, was that all contributions of

public sector employees were paid into the consolidated revenue fund and all

pension benefits and other expenses were paid from it. The same thing happened

basically in the Province of Ontario but they recognized the full cost of the

pension by issuing a note. So in actual fact they recognized the fact that they

were borrowing from a pension fund. So they would say to their pension

authorities, these are our contributions, these are the public service

contributions, we are going to borrow those back and here is a note for them.

MR. PENNEY: The note just basically acknowledged

their obligation.

MR. BENNETT: Yes, exactly right and as the

Chairman said, therefore that represented a bunch of money they did not have to

borrow in the open market. They essentially said: well of our total borrowing

program of x dollars, x - y or something was taken from the pension fund. The

only thing that we have done differently is we have never recognized it,

pre-1980, in quite that format.

MR. PENNEY: Yes. Considering the differences in

the populations of all the Canadian provinces and the massive unfunded liability

of $2.4 billion as of '93, and a province with a population of about a half

million, comparing that with the other provinces and putting all of those

factors into the mix, is there any other province in Canada that comes close to

having the problem that we do? Putting it all into perspective.

MR. BENNETT: I have never identified that but my

gut reaction and strictly gut reaction is, no.

MR. PENNEY: Okay, then since that is your gut

reaction you are not in a position to tell us how we compare with whoever comes

second?

MR. BENNETT: No, I might be able to get that

figure. If you wish I could have the comparison done but I certainly can't get

it right now.

MR. PENNEY: Mr. Bennett, it is noted in here by

the Auditor General that: The report of the actuary has not been officially

accepted by government, and that was at the time that this was printed up. Has

that changed? Has government officially accepted the reports of the actuaries?

MR. BENNETT: Yes, Mr. Penney, it has. Government

has accepted the reports. The latest one that Mr. Gill alluded to is the

Uniformed Services' Plan; it will be tabled at the next session.

MR. PENNEY: No further questions, Mr. Chairman.

Thank you very much.

MR. CHAIRMAN: Thank you, Mr. Penney. Just a couple

of quick questions. How much do we have in the pension fund now that we have

invested? That we have investments through the pension investment committee? How

much do we have there at the moment that is invested elsewhere now?

MR. GILL: Just under a billion; $956 million.

MR. CHAIRMAN: Nine hundred and fifty-six million

dollars that we have invested.

MR. GILL: In that neighbourhood. I can check and I

will give you the exact number in a minute. I've got it here.

MR. CHAIRMAN: Can you tell me how we are doing

with that? My recollection is that we were relatively successful. The pension

investment committee did a fairly good job of investing that money and that we

had a reasonable rate of return on it. Can you give me an idea of how we are

doing and what the average rate of return is on that investment?

MR. GILL: We could give you the annual rates of

return for the years 1989 to 1993 if you wish.

MR. CHAIRMAN: Please.

MR. GILL: In 1989 the rate of return was 16.4 per

cent; in 1990 it was negative 2.9 per cent; in 1991, 14.5 per cent; in 1992, 5.0

per cent; and in 1993, 24.4 per cent. So the one negative in that series was in

1990. Of course, 1993 was a big year. The stock market was a good year. To

September 1994, nine months, we are running at a rate of 5.7 per cent.

MR. CHAIRMAN: Okay. The average there is probably

in a range of 16 per cent to 18 per cent rate of return. Much better than our

borrowing rate. It wouldn't be very sensible for us to take this money that is

earning us 16 per cent or 17 per cent and borrow it, when we can borrow in the

foreign market at probably - what is our rate now, 6 per cent, 7 per cent? Mr.

Gill?

MR. GILL: It varies in different markets. In

Canada the rates have been going quite high lately, it is up around 10 per cent

I guess now. In some of the foreign currencies you can do much lower but again

you have the foreign -

MR. CHAIRMAN: Taking a risk.

MR. GILL: - exchange risk in those cases. Probably

down around 5 per cent in interest rate, but you have the foreign exchange risk

because the Canadian dollar is....

MR. CHAIRMAN: I'm just curious then. Back in the

days when we were borrowing or not funding this, and reducing the amount of

borrowing elsewhere, could we have invested it at that time and realized a

higher rate of return than we were paying for the borrowed funds elsewhere?

Obviously you are taking a certain risk by investing this money too, because we

see one year it cost us 2 per cent and we had a minus 2 per cent. Obviously you

are taking the risk there, and it is just as much, maybe more, than on a foreign

market.

MR. GILL: Our asset mix is basically about 70 per

cent equities and 30 per cent fixed income. Of course, in years where the stock

market doesn't do well our fund has the problem such as we had in 1990. When it

does exceedingly well, like it did in 1993, we had a very good year. Over time -

and the reason we are higher in equities as opposed to a balanced fund, 50-50 -

it has been proven that equities do outperform bonds. Pensions are a long-term

liability, therefore we need long-term assets, and long-term asset mix.

Therefore we are, as I say, our policy is a little higher skewed towards equity.

MR. CHAIRMAN: Okay. Thank you very much. The

Auditor General has gotten off scot-free today. Disgraceful, actually. Do you

wish to have any final comments, or do you have questions you wanted to put

forward?

MS. MARSHALL: I would like to make one comment.

While we didn't cover the recommendations relating to the financial statement

presentation and the accounting for pensions, I would like to acknowledge that

the Department of Finance has done a great job with implementing those

recommendations.

MR. CHAIRMAN: That worries me a little bit, Mr.

Gill -

MS. MARSHALL: Yes.

MR. CHAIRMAN: - when the Auditor General makes

that -

MS. MARSHALL: Compliments.

MR. CHAIRMAN: - kind of a complimentary remark to

the Department of Finance. There seems to be some collusion going on here.

MS. MARSHALL: Yes. Well, it was a -

MR. CHAIRMAN: But maybe we are finally making some

real progress, is that...?

MS. MARSHALL: Yes. The Comptroller General's

Office - the three people to Mr. Gill's right, have done a tremendous amount of

work over the past year.

MR. CHAIRMAN: Thank you very much. Duly noted, and

the Committee I'm sure acknowledges the work of the staff of Treasury Board, and

hope you keep up the good work.

Mr. Gill, do you or Mr. Bennett, or anybody else wish

to make any final comments?

MR. GILL: I could make one quick comment. In

response to Mr. Penney's question about other provinces, we do actually have a

list as of 1992-1993 of what the liabilities are in each of the provinces which

we could give you or I could read them into the record, whatever you would like.

MR. CHAIRMAN: If it will only take a moment, why

don't you read them if you have them available now, to have on the record?

MR. GILL: Okay.

Prince Edward Island, at the end of 1992, a liability

of $332 million. The federal government, we have them in here, a liability of

$80.1 billion; British Columbia, $445 million, that's the end of 1993;

Saskatchewan in 1993, $3 billion; Quebec in 1993, $25.5 billion; Nova Scotia in

1993, $381 million. There is a correction in Quebec, I should have said $29.5

billion; New Brunswick in 1993, $1.7 billion; Ontario as of 1993, $11.8 billion;

Alberta in 1993, $4.8 billion; Manitoba in 1993, $1.6 billion; Newfoundland in

1993, $2.4 billion.

MR. PENNEY: I missed the one between New Brunswick

and Alberta and I am assuming it is Ontario?

MR. GILL: Ontario, $11.8 billion.

MR. CHAIRMAN: Thank you very much. That concludes

the hearings for today and unless you have any further comments, I want to thank

the witnesses who have appeared before us today for your attendance and for your

frank and detailed answers. I thank the Auditor General and her staff for having

a very quiet day, a very relaxing day.

For the benefit of the Committee, this concludes this

set of hearings on last year's Auditor General's report. I think this finishes

our schedule. The Clerk and the research assistant will now put together our

report which I would hope we will have available early when the House opens in

March, around the middle of March, would that be reasonable? We would hope to

have that so we can present our report to the House of Assembly, hopefully,

prior to the Easter break.

I apologize to the Vice-Chair. I have not had a chance

to discuss this with him but I have had some discussions with the Auditor

General over what I would propose to do. She has advised me that her report

would be ready early when the House resumes sometime early in March, which would

be tabled. The Speaker will present it to the House of Assembly and that of

course will form the basis of our next year's deliberations in this coming year,

and what I had proposed to do is call a meeting of the Committee, if you agree,

Mr. Penney, at the Auditor General's office, something that has never been done

before.

We thought it would be worthwhile for the Committee to

visit the Auditor General's office, meet some of the staff and see the work that

is actually being done there, because we work so closely with her office. Hold

the meeting there to discuss that report and go through with her and her staff

the items that are in it, and we can decide from that meeting those items that

we wish to select for hearings subsequent to that, so if that's agreeable we

will do that. It will probably be after Easter or maybe before Easter depending

on the timing of the Auditor General's report.

MR. PENNEY: Well I certainly have no objections. I

think it is a marvellous idea. As a matter of fact I look forward to that.

MR. CHAIRMAN: Thank you very much. Again, I thank

all the witnesses, thank the Committee, thank our staff and Hansard.

This meeting stands adjourned.