OPINION: Coming changes threaten security of Ontario's pensioners
A store closing sign is shown on a Sears store at the Oakville Place mall on Nov. 23, 2017.THE CANADIAN PRESS
BY BOB FARMER, Special to the Toronto Sun
When employers go bankrupt, their current day misfortune can effectively reach back in time and undermine the accumulated pensions of their past employees, rocking the foundation built during working years to ensure financial stability in retirement.
If a business goes under while its pension plan is underfunded, pensioners end up losing part of the defined benefit pensions they worked a lifetime to obtain. This scenario has played out many times, with Sears Canada’s employees being the latest victims. It isn’t fair, and the situation is about to get worse.
Today, of the $246 billion in total liabilities for Ontario-regulated private sector defined benefit pension plans, $54 billion are unfunded. This week in Queen’s Park, the government is preparing to relax the rules for funding pension plans even further, allowing an additional $33 billion of liabilities to be unfunded, which will lead to more — and deeper — plan underfunding.
The idea is to help Ontario employers save by decreasing their obligation to fund their pension plans. But this saving is at the expense of the security of Ontario pensioners.
There’s a mechanism in place called the “Pension Benefits Guarantee Fund” (PBGF), designed to at least partially protect pensioners whose plans are wound up when underfunded. It chips in enough to ensure that the first $1,000 per month that is owed to a pensioner gets paid. Any pensioner entitled to more than that? Out of luck.
Bob Farmer, president of the Canadian Federation of Pensioners.
The $1,000 limit, put in place 37 years ago, when the PBGF was initially established, is proposed to increase to $1,500. Well and good, if a little late: Considering the inflation that took place in the 1980s, an increase to $1,500 should have kicked in around 30 years ago. Better late than never, and of course any increase is helpful to pensioners.
However, before back slaps and high fives are exchanged, it is important to remember that, even at $1,500 per month, many Ontario pensioners are left exposed to pension losses. In addition, indexation provisions – which can be 25% of the value of a pension – are lost. That is not the commitment that was made to these pensioners.
There is a solution that would ensure that Ontarians’ pension security is not made more precarious by the proposed changes to pension funding rules: Cover all Ontarians in this situation, without exception, by not limiting the PBGF.
But, wouldn’t this be very expensive? Who would pay? Reasonable questions. Since its implementation, employers with defined benefit plans have paid fees to support the PBGF. The increase in fees needed to remove limits from the PBGF is only a small fraction of the savings that these same employers will enjoy when the government relaxes the pension funding requirements.
The Canadian Federation of Pensioners (CFP) estimates that fraction to be approximately 5%. Consequently, the net effect of the proposed pension funding changes and elimination of the PBGF cap combined would still be a substantial savings to employers — conservatively estimated by the CFP to be well over a billion dollars a year.
Any relaxation of pension funding rules should be accompanied by this simple change to the PBGF. It’s a win-win solution for employers and pensioners: Employers will realize substantial savings; pensioners will finally be assured that the pension commitments made to them will be honoured and their pensions truly protected.
This simple fix comes at no net cost to employers, and no cost at all to taxpayers. The time to implement it is now, as part of the current round of changes. Both opposition parties support it. The ball is in the government’s court.
— Bob Farmer is president of the Canadian Federation of Pensioners, an association of pensioner organizations dedicated to enhancing the security of defined benefit pension plans. The member organizations of CFP represent the pension interests of 250,000 plan members across Canada.