Correction: The original version of this post included administration costs in the ATRF cost to manage investments number. I assumed their total cost to manage their investments is 0.89%, whereas it was actually slightly lower at 0.84%. I also referred to AIMCo as a pension administrator. I have updated these incorrect references to the correct term(s) investment administrator or fund manager, for clarity.

When the Alberta government budget dropped late last week, teachers across the province learned that their pension plan will soon be on the move.  The Alberta government announced that the pension manager would be changing from the independent Alberta Teacher’s Retirement Fund Board (ATRF) to the Alberta Investment Management Corporation Board (AIMCo), a crown corporation.

I first read about it in this CBC article by Joel Dryden.

I can totally understand teachers feeling uneasy about such a large change to, what is, effectively for teachers, the bulk of their retirement savings. The Alberta Teacher’s pension is no small chunk of change either, coming in at $16 billion.

Pension Costs

Costs are an extremely important factor when considering where to invest.  Why?  Because investment returns are something we hope for, strategize for, and make hypotheses about, whereas costs are something investors, in this case, Alberta’s teachers can actively control.  This is something that I explain to my clients fairly regularly.  And don’t kid yourself, this individual investing principle is completely applicable here as well. 

Here are a few examples of calculations and numbers I looked at when I did a bit of a deeper dive into this story (for fun… yes, really).

  1. The ATRF is not nearly as efficient in their cost control as AIMCo. ATRF’s Fiscal 2018 annual report notes investment expenses at 0.84% of total pension fund assets, while AIMCo’s investment expenses only represent 0.53% of their respective assets.  Put another way, for every $10,000 invested, ATRF needs $84 to run its investment operation, while AIMCo needs $53 to accomplish the same thing. That’s a 36.9% discount by the way.
  • The ATRF paid 0.51% in external management fees – kind of like sub-contracting out money management.  This is incredibly expensive.  By comparison, AIMCo runs it’s ENTIRE portfolio for 0.53%.  My clients don’t pay fees that high for money management and their accounts don’t command near the volume discount that a $16 billion account would.
  • As the Alberta teacher’s pension assets move over to AIMCo investment administration, this could create cost savings, lowering the cost-to-administer-ratio further.

In summary, when looking at costs alone, AIMCo is a much more efficient pension manager than ATRF.  When examining whether or not this is a prudent move by the Alberta government, an analysis of this factor alone should tick the “right move” box, for sure.

Part II will cover performance comparisons of the fund managers. Stay tuned…and thanks for reading!

All the information I read and gathered for this post was taken directly from the ATRF Fiscal 2018 Annual Report and the AIMCo Fiscal 2018 Annual Report

I hope you enjoyed this article. If you are interested in a free, no-obligation 30-minute financial consultation (provided virtually for your convenience), feel free contact at me at 780-357-1780, or kris@fpconnect.ca.

-Kris