If you and I opened a joint savings account and, after a few years, one of us decided to pull out, the division of the remaining balance presumably would have something to do with how much each of us had put in over the years, what the return on our joint savings had been, and what it had cost to run the account (i.e., just how exorbitant the bank charges had been). And, of course, it would help a lot if at the outset we had written down the rules under which either of us could withdraw.

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William Watson: Alberta should take a 'random' walk out of the CPP Back to video

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The Canada Pension Plan, established in the mid-1960s and substantially re-jigged in the 1990s, is a little more complicated than a joint savings account — OK, it’s a lot more complicated — but when it was set up the provinces who joined did write themselves rules to govern how much a province would take with it if it decided to withdraw. The operational part of those rules is reproduced below. Granted: to understand them, it’s probably better to be a lawyer or accountant, maybe both, even if the several excisions indicated by ellipses do make the original a little clearer.

But the principle seems to be: consider what provinces contributed, what they took out and what their fair share of the plan’s administration costs was. Of course, provinces don’t finance pension plans, people and businesses do, so tracking problems arise. If people who worked in Alberta all their lives retire to British Columbia, should their CPP benefits be credited to their old home province or their new one?

What I read suggests withdrawal provisions were written into the CPP at the insistence of Ontario premier John Robarts, a proud and devoted Canadian (born in Alberta) who was a key player in remaking this country in the 1960s. The deep principle behind them was that a province shouldn’t have been made worse off by joining CPP and if it was, it should receive sufficient funds at withdrawal to make it whole — a difficult counterfactual whose honouring could easily require several times the funds available.

At the time, Ontario was the country’s economic engine. (I suppose now it’s the country’s economic battery, with all the reliability problems that involves.) If patriotic Ontario thought a province, i.e., itself, might be hard done by the CPP and therefore need reasonable withdrawal rules, then withdrawal should hardly be seen as the dastardly anti-Canadian act some people paint it as today. Especially since the 1990s reforms of the system left the rules essentially unchanged. Not to mention that from the very beginning, one province, Quebec, decided not to join CPP at all and instead set up its own QPP — an act of financial apartness tolerated by Lester Pearson’s “co-operative federalism.”

On the other hand, a decent respect for the opinions of fellow Canadians means Alberta should have good reason for withdrawing. That its citizens have been paying in more than they’ve been taking out is not one. They’re younger on average than other Canadians and more likely to be working. That’s how pension plans roll. Albertans’ time will come.

If the argument is that Alberta wants to be like Quebec and use captive funds to support local investment, which quickly and predictably devolves into crony capitalism, or in Quebec’s case crony social democracy, that would be a bad reason. All governments are moving in the direction of government-directed growth financed with captive funds. It didn’t work in the previous five millennia, it’s not going to work in this one.

If Alberta thinks, as Andrew Coyne periodically writes, the Canada Pension Plan Investment Board has morphed into a bloated private equity fund employing more than 2,000 people and spending $4 billion a year to essentially track the market, and the province would prefer a barebones operation that follows the simple investment rules Burton Malkiel revealed to us all in his 1973 classic, A Random Walk Down Wall Street, that’s another thing. Slash all the salaries, fire all the help and buy exchange-traded funds.

Of course, if that’s what Albertans truly believe, what they, and we, really need are withdrawal rules under which individual CPP members can choose to take their accumulated contributions elsewhere and seek their own financial returns without worrying their savings will be co-opted by politicians in thrall to the latest economic policy fads.

The CPP exit rule

From section 113 of the Canada Pension Plan Act:

(T)he amount to be calculated … in the case of any province shall be calculated … as the amount obtained by adding

• (a) the total amount of all contributions credited …, in respect of employment in that province or in respect of self-employed earnings of persons resident in that province, and
• (b) the part of the net investment return … and all interest credited …, that is derived from the contributions referred to in paragraph (a),

and subtracting from the total so obtained

• ( c) such part of all amounts paid as … benefits under this Act …, and
• (d) the part of the costs of administration of this Act …, that is equal to the proportion of those costs that the total amount of the contributions referred to in paragraph (a) is of the total amount of all contributions …

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