Workers with federally regulated firms could have payments cut after retirement
Ottawa is proposing a new category of pension plan for federally regulated private-sector and Crown corporations, and that has some would-be pensioners concerned.
The concern arises because, under the federal proposal, workers whose pension plan is regulated under the federal Pension Benefits Standards Act could have their payments reduced after they’ve retired and are unable to easily adjust to a cut in income.
As proposed, the new breed of pension plans would only affect people working at federal Crown corporations or federally regulated companies such as Canada Post, banks and transportation companies.
Some pension experts have suggested, however, that once it is accepted at the federal level, target benefit pensions will most likely be introduced for the private sector as well.
In revealing the proposal in Toronto on Thursday, Minister of State for Finance Kevin Sorenson indicated the new voluntary plans would be aimed at helping Canadians save for retirement through target-benefit plans, which he described as affordable and sustainable.
In theory, according to the government, the plans would allow employers and employees to share the risk of volatile stock markets. If a company pension plan is losing money, the company wouldn’t necessarily have to make up the shortfall.
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Some defined benefit plans experienced funding issues following the recession of 2008-09, requiring employers to find a way to make up the difference.
Under a target benefit plan, rather than making up the shortfall, which is required under the current law, a company could simply adjust the target for the pension payout.
Its really a moving target benefit plan, quipped Tony Rogers, president of the Canadian Union of Postal Workers, Nova Local, in an interview Friday.
Many people believe the Conservative government was thinking of Canada Post when it created the new pension class. Rogers said Canada Post management had floated the idea of such a pension plan in negotiations, but it was rejected by the union.
The union felt that converting to a target benefit plan from a defined contribution plan would be unfair to those who had already retired, he said, especially since retirees are not included in the collective bargaining process.
Pension expert Susan Eng, vice-president of advocacy for the Canadian Association of Retired Persons, said a target benefit plan isn’t necessarily bad, especially when compared to a defined contribution plan and if a company is starting from scratch and wants to set up a plan for its employees.
But Eng insists that making improvements to the Canada Pension Plan would be a more efficient and equitable way of helping Canadians save for retirement.
The federal target benefit pension plan, she said in a phone interview from Toronto, encourages agencies and corporations with perfectly good defined benefits plans to convert simply because it could save the organization money.
It is when employers start monkeying around with defined benefits plans ; such as allowing too many benefit improvements, contribution holidays or setting contribution rates at inadequate levels to fund the benefits that were promised ; that such plans get into trouble.
All those things destabilize the defined benefit formula, she said.
She said there is a concept in Canada of a pension promise, which is kind of a sacred pledge to protect pensioners, who have already earned and paid for their benefits, from being adversely affected by retroactive changes to their plans.
Governments are encouraging an atmosphere of pension envy in order to get away with grinding down the pension promise, clearing the way for changes to be made to government pension benefits, Eng said.
This is how she described it: Well, these civil servants, public service people, have gold-plated pensions and its too rich, and if (their pension plans) go into deficiency then it is we, the taxpayers, who have to make up the balance.
That is technically true, she said, but a properly constructed defined benefits plan, left alone to work as it is supposed to, will give the promised benefit.