April 15,2013 Measurement of accrual pension expense and related assets/liabilities

Outline Present treatment (SNA93) Issues Cash contributions Components of accrual expense Recognition of corporate sector over/under funding Future treatment (SNA08) 08/02/2014 Statistics Canada Statistique Canada 2

Implementation of SNA93 SNA93 in HR97 (released Dec 12,1997) FMS (pre GFS government system) treatment was to include unfunded liabilities in government debt In 1997, decision was taken to delay integration of these accounts into National Accounts until other economies did so Employer contributions recognized as cash payments rather than accrual concept based payment 08/02/2014 Statistics Canada Statistique Canada 3

Implementation of SNA93 (contd) In 2000, Canada altered its treatment of government unfunded employer-sponsored pension plans. To align with other employer-sponsored plans in Canadian SNA Accuracy of measures of government surplus/deficit and debt Consistent with government measures of pension liabilities in public accounts Concern of representation of government debt Evolution from unfunded to funded and breaks in series Issuance of non-marketable debt 08/02/2014 Statistics Canada Statistique Canada 4

Implementation of SNA93 (contd) Relevant measures of household pension saving and wealth no reason to believe that contributing employees covered under unfunded pension plans behave differently than those covered under funded employer-sponsored plans distinction between funded and unfunded employer- sponsored pension plans seems somewhat artificial 08/02/2014 Statistics Canada Statistique Canada 5

Compensation of employees - households 08/02/2014 Statistics Canada Statistique Canada 6

Employers Social Contributions 08/02/2014 Statistics Canada Statistique Canada 7

Problems of a cash measure For government, where GDP is measured by the sum of costs, the volatility in pension contributions has affected the overall nominal GDP estimates as well as the GDP deflator. This has been particularly noticeable at the provincial level. For the business sector, the cash treatment of pensions in labour income may result in an inconsistency with the way businesses have expensed pensions in their own financial accounts. Current method impacts compensation of employees, net general government final consumption, GDP and GDP deflator 08/02/2014 Statistics Canada Statistique Canada 8

Impact of Special Contribution for Newfoundland – HR1997 Data 08/02/2014 Statistics Canada Statistique Canada 9

Existing Measures of Pension Liabilities – Pension Satellite Account 08/02/2014 Statistics Canada Statistique Canada $millions Measurement Social Security 159,288133,174152,940174,737187,557 Canada Pension Plan122,140106,357123,893140,700152,597 Cash Quebec Pension Plan37,14826,81729,04734,03734,960 Cash Employer-Based Pension Plans 1,156,8801,053,9811,162,2711,295,1181,371,040 Trusteed Pension Plans891,326792,352883,173979,5661,048,965 Trusteed Pension Plans - Public Sector601,702537,112587,640663,970710,851 Cash/Accrual Trusteed Pension Plans - Private Sector289,624255,240295,533315,596338,114 Cash Government Consolidated Revenue Arrangements199,990205,198210,157217,316222,613 Accrual (ABO) Other Employer-Based Pension Plans65,56456,43168,94198,23699,462 Insurance Company Contracts40,70635,38043,03368,89970,503Cash Government of Canada Annuities Cash Deferred Profit Sharing Plans24,55720,77425,64229,09328,737 Cash Individual Registered Retirement Saving Plans 736,151622,462754,533833,893842,399 Deposits in RRSP Accounts114,388122,791135,790136,052135,701 Cash Mutual Funds and Segregated Funds in RRSP Accounts287,909243,492295,682325,731329,310 Cash Other Individual Registered Saving Plans333,854256,179323,061372,110377,388 Cash Total Pension Assets 2,052,3191,809,6172,069,7442,303,7482,400,996

Supplementary Balance Sheet Table 08/02/2014 Statistics Canada Statistique Canada 11

SNA 2008 For a defined benefit pension scheme, there is an imputed contribution by the employer calculated as a residual. It must be such that the sum of the employers actual contribution plus the sum of any contribution by the employee plus the imputed contribution by the employer is equal to the increase in benefit due to current period employment plus the costs of operating the scheme (SNA 2008, pg 142, 7.65). 12

Current service cost Canadian Institute of Chartered Accountant Handbook 3461 Current Service Cost is the pro rata portion of the obligation of employee future benefits attributed to a specific year of service reduced to reflect employee contributions (pg. 8) Actuarial present value of expected future benefits attributed to that period 13

08/02/2014 Statistics Canada Statistique Canada 14

Financial Statement Survey versus Fund Contributions 08/02/2014 Statistics Canada Statistique Canada 15

Future treatment in the Canadian System of National Accounts (CSNA) Change to CSNA historical revision policy Mini HRs planned for 2015 and 2017 Importance of symmetry Consistency between return to labour and return to capital Surplus calculations includes pension expense which includes current service cost plus adjustments Are adjustments part of current costs? Employers social contribution should be consistent or adjustments to surplus will need to be made –Current method includes these adjustment and transparency is higher without them 08/02/2014 Statistics Canada Statistique Canada 16

Future treatment in the Canadian System of National Accounts (CSNA) –contd Alternate measure is to take only the current service cost as the social contributions. Costs related to past service adjustments would need to handled as capital transfers between employer sectors (corporate, government and NPISH) and household sector Reality of true cost of labour 08/02/2014 Statistics Canada Statistique Canada 17

Future treatment in the Canadian System of National Accounts (CSNA) –contd Balance sheet treatment Government sector under/overfunding is included in unfunded liabilities using an ABO method Corporate sector under/over funding liabilities/assets are not isolated in current CSNA but are part of other liabilities or assets Receivable/Payable in pension plan sector related to under/overfunding Counterparty asset is not recognized in the household sector Difficulty of survey collection Possibility of use of publicly available financial statements Administrative data 08/02/2014 Statistics Canada Statistique Canada 18

Sequence of Accounts 08/02/2014 Statistics Canada Statistique Canada 19

Appendix of Related Questionnaires 08/02/2014 Statistics Canada Statistique Canada 20

Pension Plans In Canada Survey – Source of Employers Social Contributions on a Cash Basis 08/02/2014 Statistics Canada Statistique Canada 21

Quarterly Financial Statement Survey – Pension Expense 08/02/2014 Statistics Canada Statistique Canada 22

Quarterly Financial Statement Survey – Pension Liability 08/02/2014 Statistics Canada Statistique Canada 23

Canadian Regulator Questionnaire - Contributions 08/02/2014 Statistics Canada Statistique Canada 24

Canadian Regulator Questionnaire - Contributions 08/02/2014 Statistics Canada Statistique Canada 25