The Canadian Press

The federal government is not showing the true cost of the pensions it gives employees, and it should come clean before it starts reforming the country’s retirement-income system, a new study says.

The C.D. Howe Institute report comes as federal and provincial finance ministers gather in Whitehorse to discuss pension reform.

The report says the federal debt would have climbed an additional $58 billion over the past 10 years if Ottawa had valuated the assets and liabilities of the pensions it offers public servants.

In the last year alone, if Ottawa had done its math right, pension obligations would have more than doubled the size of the $6 billion federal deficit, the study says.

“I wouldn’t go as far as saying they’re cooking the books,” said Alexandre Laurin, senior policy analyst at the think tank and the lead author of the report.

“But the cost is greater than what the government is actually saying,” he said.

“We are not paying the full cost.”

Governments, including Ottawa, tend to rely heavily on aggressive assumptions to place a value on their future returns, the paper explains.

While Ottawa follows all required accounting rules, many a company has found itself in deep financial trouble lately because it has used similar math. During the financial crisis, major companies in mature industries such as steel, cars, and telecommunications have suffered huge shortfalls.

So increasingly, companies are switching to fair-value principles _ measuring assets and liabilities by their actual cost to buy or sell today, and not some assumption about the future.

The new accounting shows that risks and costs of many pensions are higher than previously thought. Ottawa is no exception when its pension plans are subject to the same treatment, the paper finds.

“Federal pensions as currently configured are more costly than is commonly understood, and expose taxpayers, and potentially participants as well, to underappreciated risks,” concludes the paper, co-authored by the institute’s president, Bill Robson.

While the implications of low-balling risks and costs are minimal right now, eventually they’ll catch up with Ottawa, Laurin said.

That’s why the federal government should expose the true costs and risks before entering into negotiations with the provinces about how best to design the country’s pension system of the future, he argued.

The federal public service offers pension benefits that are the envy of most people in the private sector, prompting some groups to call on politicians to close the public-private gap.

Finance ministers from all provinces and Ottawa are meeting in Whitehorse to negotiate how best to put retirement income for all Canadians on a steady footing.

“If the solution is another large public-sector plan, the cost would be greater than we think,” Laurin explained.

But the union representing many public-service employees says Ottawa is right to take the long view when valuating its pension assets and liabilities. Using current market prices would cause too much volatility in valuing the pension plans, said Toby Sanger, economist for the Canadian Union of Public Employees.

He said the focus on ministers’ talks in Whitehorse should be how to improve private-sector pensions and private savings plans so that they aren’t as vulnerable as the financial crisis of the past two years has shown them to be.

“We need a better pension system that pools the risk for everybody,” he said.