Does Ontario have too many big public-sector pension plans? Not according to the head of one of them.
Venture capitalist Mark McQueen stirred up tremendous debate with a blog post suggesting that Ontario could perhaps save money by consolidating into one mega-fund its big five pension plans, such as Ontario Teachers' Pension Plan, Healthcare of Ontario Pension Plan, and OMERS. (Here's the original that references Mr. McQueen's argument, and which drew dozens of reader comments.)
CEO John Crocker argues that there are significant risks with putting the province's big pension plans under one umbrella.
"Our view is that bigger for the sake of bigger alone, isn't necessarily better," Mr. Crocker wrote in a letter responding to the post. "There are risks – for workers, retirees and taxpayers – when consolidating hundreds of billions of dollars of assets into one 'mega fund'."
He pointed to the Quebec example, where the Caisse de dépôt et placement runs all the major public sector pension funds. "In 2008, that 'mega fund' lost more money than the five separate Ontario plans combined. "
What's more, his view is that that once a fund grows past a certain size, which HOOPP puts at $75-billion, economies of scale start to fade and costs can start to rise. A fund that big needs to make either a few large deals or a lot of small deals to get the returns it needs. Making a lot of small deals is costly and labour intensive, and large ones are rare.
Here's the full text of Mr. Crocker's letter:
Re: Does Ontario need so many pension funds (Streetwise blog, Nov. 25)
Streetwise echoes the question of whether the five major pension plans serving the Ontario public sector should all be merged into one fund.
Our view is that bigger for the sake of bigger alone, isn't necessarily better. There are risks – for workers, retirees and taxpayers – when consolidating hundreds of billions of dollars of assets into one "mega fund". In Quebec, the Caisse de Depot et Placement houses all the pension fund investments for public sector plans – yet in 2008, that "mega fund" lost more money than the five separate Ontario plans combined.
Moreover, our CIO Jim Keohane notes that once a fund grows beyond $75 billion in assets the real risk is diseconomies of scale – costs can actually start to go up.
The current structure of Ontario's public sector pension plans serves the public well. As the blog post states, the Healthcare of Ontario Pension Plan's (HOOPP) investment costs are among the lowest of the five. The evidence that taxpayers and healthcare workers are getting the best bang for their buck is that HOOPP is fully funded. That is to say, we have enough assets to pay the current and future benefits of all members. We are not looking for any special assistance from the government.
HOOPP recognizes that these are challenging times for the Ontario government and Ontario taxpayers. We look forward to continuing to partner with the government by efficiently and effectively delivering a stable retirement benefit to Ontario's valued healthcare workers.
Sincerely,
John Crocker
President & CEO
Healthcare of Ontario Pension Plan