The key question we should be asking about pension plans of this kind is whether we want to make that absolutely unconditional guarantee that we'll pay. Of course, there are always circumstances—the end of the world, for example—that would prevent a pension plan from delivering. However, excluding extreme possibilities, I think the right way to think about it is to ask what asset you would hold, such that if you suddenly needed to pay the obligations, you could do it and be able to put your hand on your heart and say to your plan participants, “We have you covered on this.”
In the broader public sector plans where there's a little bit of benefit flexibility, I think the joint governance probably helps to have this kind of conversation. Many of them, including some of the more recent ones on the block, like OPTrust in Ontario, for the public service there, the members of OPSEU, have explicitly said to their members that their job is to pay their pension benefit. The idea is partly to get people's attention off the rates of return on the assets because that's a bit of a sideshow. Everybody's pension plan is different. Employees may be older, younger or have different characteristics. You want to make sure that your assets are suitable to pay those obligations.
The sticking point with the pure defined benefit plan, the one where there's absolutely no flexibility, is that the type of asset you should hold to meet that promise is a very low-risk one, like the federal government's real return bond. Low-risk assets yield low returns. To buy enough of those assets to guarantee the pensions, you have to buy a lot of them. That makes the contribution rate high, and that has been the point at which people have bought. They've said that looks so expensive. They don't think about it as saving.
I'd say it's saving. If you want a guaranteed pension, save a lot. You would do the same in your private life. It looks like a cost, and people balk at the cost, and that's where you see this high discount rate creeping in to make it look affordable, but then what you're holding in the plan isn't actually going to be sufficient to meet it.
I don't have a problem with generous pension plans. I think you want to consider a balance between deferred and current compensation, but I would like to see Canadians in general able to save more. To do that, they need to contribute more. Sometimes, in order to contribute more, they have to be shown the cost of the pension and how much they should be paying. It's a bit shocking to see how much, but if returns are low, that's realistic. If you want that kind of pension, one with a real guarantee— close to certainty—of getting it, that's what you have to do. You have to contribute more.