Public Service Alliance of Canada BC

The largest union representing federal public servants wants a voice in how its members’ pension fund is run after government-appointed pension fund managers gave up on more than $900 million in investments rocked by the U.S. credit crisis.

The Public Service Alliance of Canada says it would like to see employee representation in the management of its pension fund, as is done in other public-sector plans.

Last week, the Public Sector Pension Investment Board (PSP) tabled its 2008 annual report in Parliament showing a 0.3-per-cent loss, a sharp drop from the 11.3-per-cent gain in the previous year and its first annual loss since 2003.

The loss was attributed to $920 million worth of writedowns in non-bank asset-backed commercial paper, or “ABCP” (a short-term investment vehicle that uses real estate and other assets to secure loans), and other investments called collateralized debt obligations, or “CDOs.”

Residential mortgages, bought and bundled together in large numbers like stocks in a mutual fund, are a common component in these investments. Both have been hit hard by the plunge in U.S. housing prices and the rise in mortgage defaults there.

The PSP manages $38.9 billion of pension fund assets for federal public servants, Canadian Forces members and the Royal Canadian Mounted Police.

The PSP is run by a board made up of appointees selected by the federal cabinet. PSAC does have representation on a committee that gives advice to the minister on appointees to the pension board, but there are currently no union members on the panel.

PSAC’s national pension officer, James Infantino, said this has lead to a lack of disclosure from PSP about its investments and kept pension members in the dark about the ABCP writedowns. He said PSAC only learned about the fund’s loss when he got a call from a journalist in Montreal who had noticed the report tabled in Parliament.

“We have a specific concern about these asset classes and the role PSP played in it,” he said. “There has to be further disclosure measures, to the members and pensioners and the public at large.”

The funds run by the PSP are for defined benefit-pensions, guaranteeing fixed payments to pensioners when they retire, so the loss is unlikely to affect benefits paid. But PSAC says it is concerned that the fund faces ongoing exposure to the woes rocking the U.S. economy, caused by the mortgage crisis.

The union has received outside analysis suggesting that the fund’s exposure on ABCP could be greater than reported and could drag it down further this year, Mr. Infantino said.

“This isn’t over. The financial situation in the U.S hasn’t gotten any better. It has gotten worse.”

Although the pension plans are now adequately funded, continued losses could jeopardize the health of the plans and, in theory, could require more cash from the employer — the federal government.

In their annual report, the pension managers point to the mortgage crisis in the U.S. for triggering liquidity problems (problems in converting investments back to cash) and a flight by investors to safer shores.

In the annual report, PSP chief executive Gordon Fyfe expresses confidence in its current commercial paper holdings, saying: “over 95% of the underlying assets supporting the ABCP we currently own are of high credit quality.”

The CPP Investment Board, which manages the Canada Pension Plan fund, said last December that it held about $6 billion in investments in ABCP but all are bank-sponsored and considered a safer class of investment.

source: Ottawa Citizen, July 24 2008