Flaherty fiddles with pensions
NationalPost.com – FP Opinion/Columnists – Flaherty fiddles with pensions
Published: Wednesday, October 28, 2009. Terence Corcoran, Financial Post
One of the underlying problems of the Canadian pension plan system — public and private –has been the tendency of its promoters to oversell products that could not be delivered. We have actuaries who told us how pension funds could beat the stock market over the long term, governments who took on public service pensions risks without telling taxpayers about the costs, and unions that loaded their private sector employers with pension liabilities that could never be met.
And now comes Finance Minister Jim Flaherty with a reform plan that, once again, oversells what he is actually doing. “Our government has listened to Canadians,” he said yesterday. “We understand the value of secure and sustainable pension plans. We are proposing a balanced package of measures for the benefit of pension plan sponsors, plan members and retirees.”
What Mr. Flaherty delivered, instead, was a list of worthy fiddles with rules and laws governing pensions that are subject to the federal benefits standards act. That means only 7% of Canadian pension plans will be affected by the proposed reforms. The fiddles, moreover, will do nothing to relieve the shortfalls faced by that 7% should their pensions be underwater or their employers in bankruptcy.
Spotting this obvious gap in Mr. Flaherty’s announcement, Liberal finance critic John McCallum accurately charged the government with failing to bail out the average Canadian pension plan that’s struggling with a 20% deficit. But then Mr. McCallum, playing the usual game, promised the Liberals will soon deliver their national plan for pension reform. It will include a new Canadian Pension Plan scheme, more tax incentives and other proposals. The Liberals, in other words, will oversell Canadians on another pension program that will not deliver.
Mr. Flaherty’s reforms, had they been in place, might have made the current private pension problems less severe. Making it easier for plan operators to add new money to pension plans when the plan is in surplus acts as an incentive for more corporate contributions. But there are no guarantees corporations would have made those extra contributions — especially when they were being told by investment and actuarial experts, time and time again, that the stock market would soon rise and the pensions plan was safe.
None of these short-term federal fixes, nor any of the political banter, will matter much over the longer term. Pension law and economics are broken, and the process of bringing about major reform will take several years — assuming all the players at the table can reach agreement. Each province will have its own ideas, and a long list of private players, including the insurance industry, will also want to shape the outcome of any reform effort.
But even if some new national approach is worked out, it is unlikely anybody is going to be able to rescue the private-sector pension plans that so many companies adopted as perks for their employees. The best hope is a recovery in financial markets, which could over time reduce the deficits. Once plans are in balance, it will be a lot easier to begin unwinding the old plans and bring in new plans for new employees. That process is already underway.
For pension plan members and individual Canadians, the best approach is to approach all reforms and plans with great skepticism. The tendency to oversell, to promise results and benefits that can’t be delivered, is especially powerful within government.
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