Multi-employer, contingent-benefit pension plans cover hundreds of thousands of current and former employees of Canadian governments, and millions more in Canada’s broader public sector – employers such as hospitals, school boards, and colleges. Understanding the value of these plans’ obligations, and whether their financial condition affects governments’ ability to deliver services without tax hikes, is important. The ways governments report the annual operations, and cumulative assets and liabilities, of broader-public-sector pension plans need re-examining. Reporting of pension costs as they accrue, and net obligations at a point in time, is tricky. Pension payments will occur in the future – projecting even the simplest payment requires choosing a discount rate – and are subject to uncertainties such as longevity and future salaries. Many major pension plans in the broader public sector have benefits that are contingent on their funded status. Moreover, many major plans are multiemployer plans – even when governments are the unique or majority funders of the employers, it is not clear that governments are, or should be, responsible for funding shortfalls if a plan gets into trouble.The Public Sector Accounting Board is reviewing accounting standards that could affect the entities consolidated in government financial statements and the ways they report contingent pension plans. This paper makes several recommendations to foster more complete and informative reporting related to multiemployer, contingent-benefit plans in Canada’s broader public sector. A key one concerns public-sector employers whose pension plans create exposure beyond the contributions they make each year, but show their annual contributions as their only cost, and no pension-related obligations on their balance sheets. We need clearer criteria for identifying contingent pension plans – often referred to as target-benefit plans – that involve employer-side funding risk that is genuinely small enough to ignore. The sponsors and managers of those plans, and their participants, likely also need more clarity about who bears the risks in, and how to govern, a plan that guarantees stable contributions to employers. When employer-side risk is material, users of financial statements should see it. The best place to report it is in the financial statements of the employer. Some provincial governments currently show costs and obligations of pension plans in their broader public sectors that do not appear in the financial statements of the employers themselves. A province might choose to increase its support for employer organizations when their employee pension plans are in trouble. But showing these costs and obligations at the provincial level suggests a more active provincial role in the plans and the employers than is appropriate. Worse, if it leads employers and plan participants to expect a bailout, it creates a moral hazard – making a bailout likelier to be needed. Canada’s multi-employer contingent-benefit plans are large and growing. Transparency about their costs and who bears the risks in these plans needs to keep pace
