The federal government initiated a Canada Post review soon after coming into power in 2015. The review committee plans to hold hearing across the country but has already identified many of the issues that need to be addressed.

A big problem for the Corporation is the high cost of providing services. By its very charter, Canada Post is committed to providing door-to-door delivery to virtually every address in Canada, five days per week. Add to that the commitment to keep open 3,700 rural post offices which may or may not be financially self sufficient (many require subsidisation). Next, add the high cost of labour and the inability to outsource services to parallel providers such as Purolator due to collective agreements.

And the biggie, as seems to be the case with many large legacy organizations, is the cost of meeting pension funding requirements to avoid future shortfalls. But this last point is where the story has an interesting twist.

The Canada Post pension plan has a solvency deficit of $8.1 billion. That sounds bad, and it is bad because current law requires the Corporation to make payments to erase that deficit. The solvency measure calculates how much would be needed to meet all pension obligations if the plan were to be wound up immediately. For the Corporation to make up this shortfall, it is impossible to balance the annual budget, even if they find ways to cut costs and increase revenue (they are working on both of these). Because of this situation, the federal government gave Canada Post a break from making solvency payments from 2013-2018 to try to sort things out.

But here is where things get interesting.

Does Canada Post really need to make up the solvency deficit? After all, they are a crown corporation and therefore they will never need to wind up the plan, unless the government itself goes out of business.

By another measure, the Pension Benefits Standards Act assesses the funding of a pension plan as a “going concern”. This calculation assesses the financial cost of operating a pension plan indefinitely. By this measure, Canada Post actually has a $1 billion surplus. Therefore, some people are arguing that the rules need to be changed so that Canada Post is no longer bound by the solvency rule and instead can operate by the going-concern rule.

Will those people be heeded? Stay tuned …

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