We’ve received mail from many U.S. AFM Members who feel our pension fund would
have been better oﬀ under Canadian management. Existing comparisons of the two
pensions are incomplete and contain some serious mistakes, so we did our own. Here’s
a summary of our results:
- The U.S. Pension system is vastly more transparent than Canada’s,
which appears completely opaque. This is a serious problem which makes it
impossible for a third party to evaluate the health of Canadian pensions. On the
other hand, the Canadian pension plan does a better job communicating with its
members than the U.S. AFM-EPF has made great strides in this area but still
lags behind Canada.
- The Canadian pension system is much more conservative and involved in
pension plan operations than the U.S. pension system is. While this has made
Canadian beneﬁts lower it may have contributed to a healthier pension system.
- The Canadian Pension plan has superior investment
performance and 50% lower investment costs compared to the U.S. plan. The
U.S. plan is larger which may account for some of its diﬃculties.
- Both plans have had diﬃculties which have led to pension cuts. The U.S. plan
had several cuts, including lowering its beneﬁt multiplier to $1.00 USD in 2010.
The Canadian cuts were later, reaching a low of $1.26 USD in 2013, levels
that each plan still has today. Perhaps the most serious mistake made
in analyzing the Canadian plan is the claim that the current beneﬁt
multiplier is three-times the size of the U.S. beneﬁts multiplier. This
is incorrect. It is only $0.26 USD higher.
- The U.S. plan spends substantially more per participant than the Canadian
plan. Some of this is explainable by the much larger size of the U.S. plan, but
- Due to the opacity of the Ontario pension plan system, it is impossible
to say how healthy the Canadian pension plan is. They have suﬀered recent
setbacks and been forced to reduce beneﬁts to levels close to the American plan.
Whether this is temporary or a sign of more trouble to come is impossible to say
without more information.
- Superior expense and investment performance has not saved the Canadian
plan from the need for reducing beneﬁts and the Canadian plan’s beneﬁts are
currently very close to those in the U.S. The Canadian plan may be healthier
than the U.S. Plan; if it is, we believe this is due to more conservative ﬁnancial
management forced on it by regulators. While we encourage the U.S. plan to
continue to improve investment performance and cost controls, these will not
solve the existing structural problems faced by the AFM-EPF. Both plans (and
regulatory systems) could learn some good lessons from each other.