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

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)

23-04-10Statistics Canada • Statistique Canada2

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


Implementation of SNA93 (cont’d)

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


Implementation of SNA93 (cont’d)

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


Compensation of employees - households


Employers’ Social Contributions


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


Impact of Special Contribution for Newfoundland – HR1997 Data


Existing Measures of Pension Liabilities – Pension Satellite Account


2007 2008 2009 2010 2011

$millions Measurement

Social Security 159,288 133,174 152,940 174,737 187,557

Canada Pension Plan 122,140 106,357 123,893 140,700 152,597Cash

Quebec Pension Plan 37,148 26,817 29,047 34,037 34,960Cash

Employer-Based Pension Plans 1,156,880 1,053,981 1,162,271 1,295,118 1,371,040

Trusteed Pension Plans 891,326 792,352 883,173 979,566 1,048,965

Trusteed Pension Plans - Public Sector 601,702 537,112 587,640 663,970 710,851Cash/Accrual

Trusteed Pension Plans - Private Sector 289,624 255,240 295,533 315,596 338,114Cash

Government Consolidated Revenue Arrangements 199,990 205,198 210,157 217,316 222,613Accrual (ABO)

Other Employer-Based Pension Plans 65,564 56,431 68,941 98,236 99,462

Insurance Company Contracts 40,706 35,380 43,033 68,899 70,503 Cash

Government of Canada Annuities 301 277 266 244 222Cash

Deferred Profit Sharing Plans 24,557 20,774 25,642 29,093 28,737Cash

Individual Registered Retirement Saving Plans 736,151 622,462 754,533 833,893 842,399

Deposits in RRSP Accounts 114,388 122,791 135,790 136,052 135,701Cash

Mutual Funds and Segregated Funds in RRSP Accounts 287,909 243,492 295,682 325,731 329,310Cash

Other Individual Registered Saving Plans 333,854 256,179 323,061 372,110 377,388Cash

Total Pension Assets 2,052,319 1,809,617 2,069,744 2,303,748 2,400,996

Supplementary Balance Sheet Table


SNA2008 Core table Supplementary Table (not core)Household Corporate Government Non - Resident Social Security

Assets A = Lc+Lg

ignore Lss

Liabilities Lc Lg Lss

CanadaHousehold Corporate Government Non - Resident Social Security

Assets A = Lc+Lg Asscore matrix does not balance with matching liability

Liabilities Lc Lg

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 employer’s 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

Financial Statement Survey versus Fund Contributions


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


Future treatment in the Canadian System of National Accounts (CSNA) –cont’d 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


Future treatment in the Canadian System of National Accounts (CSNA) –cont’d 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


Sequence of Accounts


Gross Domestic Product, Income Based Gross Domestic Product, Expenditure Based

Compensation of Employees General Governments Final Consumption ExpenditureSalaries and WagesEmployer's Social Contributions

Gross Operating SurplusNet Operating Surplus of Corporations

Current Account of Household Sector, Corporate Sector and General Government Sector

Saving and Net Lending/Borrowing

Balance Sheet

Household SectorPension Asset

Pension Sector Receivable from Government or Corporate Sector

Government or Corporate SectorPayable to Pension Sector

Appendix of Related Questionnaires


Pension Plans In Canada Survey – Source of Employers’ Social Contributions on a Cash Basis


Quarterly Financial Statement Survey – Pension Expense


Quarterly Financial Statement Survey – Pension Liability


Canadian Regulator Questionnaire - Contributions


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

Documents

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