Accountants call on governments to require company pension plans

TheStar.com – Business – ‘It’s a matter of equity,’ says researcher for Certified General Accountants
Published On Sat May 01 2010.  By James Daw Personal Finance Columnist

Canadian governments should make businesses offer pension plans, although nothing so costly as civil servants enjoy, argue researchers for a group of 73,000 accountants.

Rock Lefebvre of the Certified General Accountants Association of Canada says mandatory pensions plans — even without a guaranteed benefit — would raise the cost of doing business.

“But it’s a matter of equity,” he argues. “Someone working in the service industry merits a pension plan as much as anyone else.”

To help businesses prepare, he says the new requirement could be phased in over three to 10 years. Individual workers could be signed up automatically, but given the option to drop out.

Lefebvre and fellow researcher Kamalesh Gosalia are pessimistic when discussing traditional defined-benefit pension plans in a new report Friday.

They note that major companies like Nortel Networks Corp. have been dropping like flies. The remaining pension sponsors are under strain, and many are closing their plans to new entrants.

Even the plans for public-sector employee could be vulnerable to resentment among taxpayers, most of whom have neither a pension plan nor much in savings.

Meanwhile, Lefebvre said in an interview, there has been a worrying increase in the debt carried by households during the recent recession.

The authors cite the huge divide between those with and without pension plans. “It is simply not possible under the current rules (for an individual) to generate or to mimic the benefits bestowed by public-sector (defined-benefit) pension plans,” their report notes.

Most pension plans were knocked hard during the past decade. The crash of stock prices in 2008 and today’s low interest rates left about 92 per cent of plans short of funds at the end of 2008, according to estimates by consultants at Mercer. Things have not improved much since.

“If Canadian businesses are required to fully fund these plan, many of them will not remain competitive, or sustainable, in the current globalized economy,” their report for CGA-Canada warns.

Lefebvre and Gosalia advocate moving toward pension plans that would guarantee a base level of income in retirement, while also offering a savings plan that could have variable results.

“There should also be a simple and transparent method of valuing the interest of participants so that such interest is fully portable on change of employment,” they argue.

The researchers call for a new national pension authority to promote alternative forms of pension plan, and to ensure these are sustainable.

This new authority could be the “last voice of wisdom” before pension plans make decisions that might compromise their future sustainability.

Ontario and an umbrella group for teachers’ unions agreed during the stock-price bubble of the 1990s to add $6 billion worth of benefits and forgo $6 billion worth of government contributions to the Ontario Teachers’ Pension Plan.

The decision has proved to be short-sighted and hasty. Pension plan managers estimate the plan was short $17 billion as of Jan. 1, 2010.

Lefebvre said in an interview that a new pension authority should have the power to review such decisions, as well as high-risk investment choices such as derivatives.

Accountants, who regard themselves as strategic advisers to business, have joined others who are calling for changes in law to improve protection of pensions promises in a bankruptcy.

Ottawa and the provinces are still gathering public comment on how to increase pension coverage and retirement savings.

Finance Minister Jim Flaherty will be in Toronto Tuesday to speak to a conference on pension reform hosted by the Institute for Research on Public Policy of Montreal.

He has stated repeatedly that he thinks the first principle of any further pension reform should be to “do no harm,” without spelling out what harm he fears.

It’s possible, says Lefebvre, the minister is wary of loading an extra burden on business so soon after the recession, when confidence is not high.

But he said CGA-Canada sees its call for increased pension coverage as “being responsible for the good of all Canadians.”

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