2009 State of the Canada Post Pension

What is the state of the Canada Post Pension, and what are all the numbers about? Here is Moya Greene’s perspective before a parliamentary committee in 2009 while she was still CEO of Canada Post:(1)

Senator Callbeck: So how much of that came about in the year previous because of the downfall in the economy?

Ms. Greene: A considerable amount. There has been a high degree of volatility in the solvency deficit of our pensions and many pensions mostly because of discount rate.

Senator Marshall, please do not take this in a bad way, but as much as our accountants over the past 10 years have driven us to be more transparent, I am not sure we are quite there when it comes to pension accounting. The solvency deficit has fluctuated quite a bit over the five years I have been at the company because of changes in discount rates. It is important to note that on a going concern basis there is no deficit in the Canada Post pension; it has a surplus of $597 million. The solvency deficit is calculated in a different way where the discount rate that you use to calculate a solvency deficit is different than the discount rate you use to calculate a going concern is different than the discount rate that you use on an accounting basis for pensions.

In our case, the solvency deficit relies heavily on the rate of real return bonds, which has moved quite dramatically over the five-year period. The solvency deficit has gone from a $1.6 billion deficit five years ago to a $1.6 billion solvency surplus in year three to a $2 billion solvency deficit in 2010.

The reason the solvency deficit is such a difficult thing for us to manage at Canada Post is because the rules on paying for a solvency deficit require you to pay the deficit over a five-year period, and the cash drag of paying for the solvency deficit over that short a period of time is enormous.

For example, in 2010 we will put $800 million of cash into our pension. That is an enormous amount of money by anyone’s imagination, and about $300 million is for regular contributions to the pension, but $500 million is for paying off, over the five-year period, our $2 billion solvency deficit. As discount rates change, of course, that number can change dramatically.

Our pension is so big relative to our company. Our pension liability is about $14 billion, and it sits on top of a company that has $7.3 billion of revenue and generally makes less than $100 million unconsolidated. You do not need to be Senator Marshall or an actuary to see that as a huge liability. Even the minor changes in the discount rate and the way in which you calculate these various matters of solvency and going concern deficit can have an important impact on how much cash you have to put into the pension. It is unmanageable because you do not know from one six-month period to the next how much you will have to put into the pension. It is hard to predict.

I am happy to say that our people enjoy a very good pension. It is one of the promises that were made to postal workers back to when we had the department of the post office. I am pleased to say I will be able to honour those obligations for now.

With our planned modernization and with our new way of looking for new sources of revenue for the business, we will never fall into the impossible situation the United Kingdom or the United States find themselves today. However, there is no question that the pension is a huge liability.


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