Federally Regulated Private Pensions in Canada Under Attack

[tay]

“Target benefit plan,” eh? What’s next—a target wage plan?




“We’ll try to pay you $22 an hour like the contract says. But if things get tight at budget time, we might have to drop that to $14 or so. OK by you?”


No. Not OK.


Workplace pensions are, in fact, deferred wages. They’re a forced savings plan that permits, or should permit, retired Canadians to live decently. A defined benefits plan (DBP)—what our members presently have—is a contract: in return for making regular contributions, a set retirement income, with indexing for inflation, is guaranteed.


Enter Kevin Sorenson, minister of state for finance. He has a brand-new scheme in hand, and he wants to sell it to employers in federally-regulated industries and Crown Corporations. He calls it a “shared risk plan,” but it’s no such thing. It’s just shifting risk onto employees and pensioners.


This idea was first put into practice in New Brunswick in 2012, when the provincial government repealed its Public Service Superannuation Act and replaced it with An Act Respecting Pensions under the Public Service Superannuation Act. Overnight, a guaranteed retirement income was turned into a maybe-yes-maybe-no one—and this legislation was made retroactive, affecting current retirees who thought they could look forward to a stable and secure retirement income.


Now Quebec has jumped on the rollback bandwagon as well, promising to give municipalities the power to shift to a risk-shifting plan by Christmas. Needless to say, protests are already building.


The rollback people are using the 2008 recession as an excuse to go after employees and pensioners—the defined benefit plans just aren’t affordable any more, they wail.


But that’s not the case now that the economic recovery is proceeding. Air Canada’s defined benefits plan, for example, had a shortfall of $3.7 billion last year, but has now eliminated it entirely. 40% of pension plans in the Mercer Pension Health Index were fully funded by the beginning of this year—up from a mere 6% in 2013.


A report issued by pension consulting firm Aon Hewitt indicates that the average DBP is now 95.4% funded, compared to 74% last year. Even more telling, 36% of pension plans are now in a surplus position, as opposed to 3% of them only a year ago.


Crisis? What crisis?


But any excuse will do. Eroding pension plans by shifting risk onto vulnerable employees and retirees with limited ability to absorb income cuts is quite in keeping with the Harper government’s determination to lower the boom on public sector workers and improve the profitability of their corporate friends in the private sector. Instead of showing leadership by improving retirement income security for all Canadians, it wants to “level down,” threatening young workers and seniors across the country.

This is not the way to go, obviously. The Canadian Labour Congress has for some time been calling for an increase in the Canada Pension Plan/Quebec Pension Plan, which the Harper government is strongly resisting and has successfully blocked up to now.


An emergency resolution from the PSAC at the recent CLC convention, calling for pressure on all levels of government to prevent the introduction of Target Benefit Plans, was warmly supported by the delegates, and with the CLC’s new leadership, real action on this front can be expected. The Harper government wants


“consultation” on the matter, and is about to get an earful, I suspect. Closer to home, Minister Tony Clement says he has no plans to convert the pension plan of federal government workers anytime soon. But we should take this with the usual fist-sized grain of salt: Clement, I suspect, has his hands full already, trying to grab our sick leave in this round of collective bargaining, and he doesn’t want to open up another front in his on-going war with the unions.


Next year, who knows? Sorenson’s trial balloon has barely been launched at this point. But forewarned is forearmed: we’d better prepare for the worst, because sooner or later under the present government the worst always seems to arrive.




Pensions next? - Headwinds / Vents Contraires

 

[captain morgan]

This have everything to do with the possible future upside of the pension pay-out.

What they are saying is that the gvt is prepared to go to a Defined Contribution plan rather than guaranteeing a future lifestyle.

The shared-risk relates to the reality that a defined benefit plan is entirely dependent on the nature of the future ROI in the markets from investing.

For the taxpayers, Defined Contribution is the only way to go

 

[taxslave]

Most non government plans are defined contrabution. Nothing new here. It is a fact that many defined bebefit plans are underfunded since they were pasically a pyramid scheme that required a constant growth in membership and huge investment returns for those at the top to collect a maximum payout. This has obviously not always happened leaving many plans with unfunded liabilities.
Our union plan is defined benefit but our employers pay over $5/ hr into it. This was done instead of higher wages.

 

[captain morgan]

Don't forget that in many 'defined benefit' plans, the pension payout is based on the best 5 years of earnings of that person as opposed to the actual year-over-year earnings in which the employee kicked in.

Skews the numbers upwards pretty heavily

 

[Kreskin]

They do put a yearly maximum amount on the 5 year measure.

 

[captain morgan]

I was unaware of that. I was lead to believe that it was the best 5 years.

Live and learn

 

[Kreskin]

I went into a commission-based position for a few years. It capped the yearly pension amount. It would've been nice to have the full amount used for pension. Basically it was set at an amount equivalent to about what they would have paid if the job had been salary. Still can't complain as it did help.

 

[taxslave]

I was unaware of that. I was lead to believe that it was the best 5 years.

Live and learn

I think that depends on the plan. Ours is just time served. Or more correctly number of years of contrabutions since in construction it is not unusual to be missing years. Also we can top up our contrabutions to I think 3000 hrs. A year. I only worked about 1500 hrs last year. Iwas trying to determine if this was better than putting money into my RRSP but it got complicated and the pension administrators refuse to give financial advice. Not sure I would trust the opinion of the bank I have RRSPs with either.

 

[Kreskin]

One of the newer trends is defined benefit plans not allowing a transfer of the commuted value upon termination.

 

[tay]

The 'comments' section on the following article has some insight on both private and public pensions






Increasingly the anger over “gold-plated” public sector pensions isn’t focused on how much government workers are earning in retirement, but that they have access to a pension at all. Thanks to the decline of manufacturing jobs, the percentage of private sector workers enrolled in defined benefit pensions dropped from 35 per cent in 1970 to 12 per cent by 2010. Nearly all public sector workers in the largest provinces are covered by workplace pensions, regardless of whether they are junior secretaries or senior managers. By contrast, even the most skilled private sector workers have roughly a one-in-two shot of landing a job with a pension. Even then, most of the private sector pensions are defined contribution plans, where the benefit payouts depend on how a worker’s individual retirement account performs.


The differences between the two types of pensions are huge. The ICP estimates the typical defined benefit plan for a manufacturing worker is worth $255,000 compared to $43,000 for a defined contribution plan.


That is the kind of discrepancy that riles taxpayers, who end up paying out more to fund public pensions than they get from their own employers. The ICP estimates that governments contribute an average of $4,530 a year for every worker, compared to an average contribution of $3,230 for private sector employers. Those are tax dollars not available to fund health care and infrastructure spending, says Tufts.


Yet others argue that growing pension envy is pushing policy-makers in the wrong direction, by encouraging governments to pare back their own pension benefits rather than expand benefits in the private sector. That will end up hitting taxpayers in other ways, such as through government programs like the Guaranteed Income Supplement for low-income seniors. A Boston Consulting Group study last year, funded by Canada’s largest public sector pensions, found that 15 per cent of pensioners with a defined benefit plan collect GIS compared to as many as 50 per cent of retirees without one. “If there’s not going to be the ability to bargain defined benefit plans then the pressure is going to come out somewhere else,” says Herb John, head of the National Pensioners and Senior Citizens Federation, who retired from Ford at age 49. “It’s like a bubble under a rug. You can’t get rid of it. You can push it around, but it’s always going to be there.”






Bill C-78 passed in Sept 14/1999, it was in regards to the federal public pension plan, The federal government had noted that there was over $ 32 billion surplus in the pension plan and wanted the money. The government stated they would invest it for the public pension plan, it was better with them. The following year when they stole the $ 32 billion, the government made the investment, one problem, they only invested 1.9 billion and refused to account for the remainder



https://ca.news.yahoo.com/canada-s-looming-pension-wars-215849948.html

 

[BruSan]

Of course Gov'ts are going to resist funding of DBP's; money within those plans is non-taxable and a great place for companies to hide profits if they can then pull off a Conrad Black and grab up actuarial deemed surpluses upon a wind up of the fund.


Gov'ts have some fail safes though by Rev Can setting rules by which funding can be put into those funds; eg: surpluses allowed cannot exceed what would be deemed two years worth of contributions ~ if an actuarial exercise shows there being too much surplus then companies are required to take a funding holiday while employees portion keeps being deducted from their paycheck.


Most DBP plans use a formulae based upon number of years of service, the final average remuneration (FAR) which is often the best three of the last five along with maximum pensionable earnings (MPE) and some kind of integration formulae which serves to reduce the payout coincidental to commencement of receiving QPP or CPP. With an allowable pension representing a maximum of 70% of that arrived at figure from ANY ONE PLAN . There is nothing preventing you from receiving more than one pension from any one source which is often what major companies do for their staff and executive level.


In short Governments have been hedging their bets for decades vis-a-vis private DBP plans in a pure and undisguised attempt to limit the amount of money sitting in those funds not garnering tax revenue to the sucking sound in Ottawa.


Smart Unions arranged for their own Actuaries.
Smart unions learned the intricacies of REV CAN's guidleines as they applied to funding of these plans and patterned their negotiating for improvements to the required filing of Actuarial assessments so that deemed surpluses were used to improve benefits through negotiations to keep them within stated limits rather than allow a trigger of a funding holiday by only the company.
Smart unions stopped misleading their members that their pension benefit as provided by skillful negotiations on their part totalled a figure INCUDING CPP/QPP and OAS. The auto sector unions were famous for this and used to publish gains made through negotiated contract settlements to be voted upon that would actually say they were providing "X" for their members upon retirement when indeed a significant portion of what they were providing was entitled government provided pension money.


I told them at many Labour Council meetings that if it were up to me I would charge them with fraud as they were misrepresenting what their negotiated portions of their retirement benefits were by melding in the entitled government pensions: "see what we got for you".


Defined benefit plans are the Rolls Royce of plans and becoming exceedingly rare with companies reluctant to assume all of the investment risk while also being obligated to infuse funds if the plan takes an investment hit. Nevertheless there remains a logical imperative to encourage them because usually company executives and upper management are members and have 'skin in the game' thereby reducing the risk to it's lower wage members from a Conrad Black type raid on the surpluses but of course all within some sort of formulae that makes reasonable sense.

 

[Sal]

“Target benefit plan,” eh? What’s next—a target wage plan?




“We’ll try to pay you $22 an hour like the contract says. But if things get tight at budget time, we might have to drop that to $14 or so. OK by you?”


No. Not OK.


Workplace pensions are, in fact, deferred wages. They’re a forced savings plan that permits, or should permit, retired Canadians to live decently. A defined benefits plan (DBP)—what our members presently have—is a contract: in return for making regular contributions, a set retirement income, with indexing for inflation, is guaranteed.


Enter Kevin Sorenson, minister of state for finance. He has a brand-new scheme in hand, and he wants to sell it to employers in federally-regulated industries and Crown Corporations. He calls it a “shared risk plan,” but it’s no such thing. It’s just shifting risk onto employees and pensioners.


This idea was first put into practice in New Brunswick in 2012, when the provincial government repealed its Public Service Superannuation Act and replaced it with An Act Respecting Pensions under the Public Service Superannuation Act. Overnight, a guaranteed retirement income was turned into a maybe-yes-maybe-no one—and this legislation was made retroactive, affecting current retirees who thought they could look forward to a stable and secure retirement income.

Now Quebec has jumped on the rollback bandwagon as well, promising to give municipalities the power to shift to a risk-shifting plan by Christmas. Needless to say, protests are already building.


The rollback people are using the 2008 recession as an excuse to go after employees and pensioners—the defined benefit plans just aren’t affordable any more, they wail.


But that’s not the case now that the economic recovery is proceeding. Air Canada’s defined benefits plan, for example, had a shortfall of $3.7 billion last year, but has now eliminated it entirely. 40% of pension plans in the Mercer Pension Health Index were fully funded by the beginning of this year—up from a mere 6% in 2013.


A report issued by pension consulting firm Aon Hewitt indicates that the average DBP is now 95.4% funded, compared to 74% last year. Even more telling, 36% of pension plans are now in a surplus position, as opposed to 3% of them only a year ago.


Crisis? What crisis?


But any excuse will do. Eroding pension plans by shifting risk onto vulnerable employees and retirees with limited ability to absorb income cuts is quite in keeping with the Harper government’s determination to lower the boom on public sector workers and improve the profitability of their corporate friends in the private sector. Instead of showing leadership by improving retirement income security for all Canadians, it wants to “level down,” threatening young workers and seniors across the country.

This is not the way to go, obviously. The Canadian Labour Congress has for some time been calling for an increase in the Canada Pension Plan/Quebec Pension Plan, which the Harper government is strongly resisting and has successfully blocked up to now.


An emergency resolution from the PSAC at the recent CLC convention, calling for pressure on all levels of government to prevent the introduction of Target Benefit Plans, was warmly supported by the delegates, and with the CLC’s new leadership, real action on this front can be expected. The Harper government wants


“consultation” on the matter, and is about to get an earful, I suspect. Closer to home, Minister Tony Clement says he has no plans to convert the pension plan of federal government workers anytime soon. But we should take this with the usual fist-sized grain of salt: Clement, I suspect, has his hands full already, trying to grab our sick leave in this round of collective bargaining, and he doesn’t want to open up another front in his on-going war with the unions.


Next year, who knows? Sorenson’s trial balloon has barely been launched at this point. But forewarned is forearmed: we’d better prepare for the worst, because sooner or later under the present government the worst always seems to arrive.




Pensions next? - Headwinds / Vents Contraires

I have zero problem with this...no more money left means just that...we all plan for our future thus asking the taxpayer to fully support it with huge increases...no

 

[captain morgan]

I have zero problem with this...no more money left means just that...we all plan for our future thus asking the taxpayer to fully support it with huge increases...no

It sure is interesting to note in the above post (tay's) regarding the relative values of the Defined Contribution vs the Defined Benefit Plan(s).

$255k vs $43k.

Helluva good deal if you are on the receiving end, but pretty crappy for those that have the responsibility to pay for it.

When you analyze the National Debt owed by all Canadians, more often than not, that number does not include 'unfunded liabilities'... Defined Benefit Pension Plans make the actual debt per capita much higher

 

[SLM]

I have zero problem with this...no more money left means just that...we all plan for our future thus asking the taxpayer to fully support it with huge increases...no

What irritates me to no end is they speak of the DBP pensions as if they are some kind of standard in Canadian society, which is far from the case. And given that it's funded by people (taxpayers) who for the most part then have to fend for themselves, it becomes downright sickening.

 

[Sal]

It sure is interesting to note in the above post (tay's) regarding the relative values of the Defined Contribution vs the Defined Benefit Plan(s).

$255k vs $43k.

Helluva good deal if you are on the receiving end, but pretty crappy for those that have the responsibility to pay for it.

When you analyze the National Debt owed by all Canadians, more often than not, that number does not include 'unfunded liabilities'... Defined Benefit Pension Plans make the actual debt per capita much higher

agreed... pensions are a wonderful thing...but I don't have a problem capping them

What irritates me to no end is they speak of the DBP pensions as if they are some kind of standard in Canadian society, which is far from the case. And given that it's funded by people (taxpayers) who for the most part then have to fend for themselves, it becomes downright sickening.

and that's where I am having a problem with it too

 

[captain morgan]

I would have little problem with offering a Defined Benefit Plan to public sector folk (or anyone), however, that would be predicated on these people voluntarily accepting a max cap on what the future upside would be... None of this, 'best 5 years' of earnings (I was corrected on this recently), but a plan that dictates that a max annual stipend is paid for the term regardless of inflation, CPI or cost of living.

Ultimately, the biggest problem is that we are living far longer than the actuaries planned for when DBPs were introduced into the calculation