We can do better than scratch-and-win pensions

TheStar.com – Opinions – We can do better than scratch-and-win pensions
October 19, 2009.   Dave Coles, President, Communications, Energy and Paperworkers Union of Canada

Over the past year, for tens of thousands of Canadians, retirement income has become the equivalent of a scratch-and-win lottery ticket.

Only the odds of winning this lottery are practically unbeatable.

When a company files for bankruptcy protection, employees who are owed money – for vacation time, severance pay and pensions – have to stand in line to claim that money from their employer in court.

Being so-called “unsecured creditors,” workers go to the back of the line, behind bondholders, suppliers and commercial lenders.

A string of bankruptcy filings since January – from Nortel to forest giants AbitibiBowater and Fraser Papers, and most recently CanWest – has made it alarmingly clear that employers can legally walk away from their pension obligations.

Other countries, the U.S and Britain, for example, have funds that protect workers when their companies face financial ruin. The U.S. Pension Benefit Guaranty Corporation tops up defined benefit pensions by as much as $58,000 a year. In Britain, workers can get up to $52,000 a year.

Why don’t Canadian workers have that kind of protection? Because Canadian legislation forces employers facing bankruptcy to terminate their pension plans, instead of allowing them to be taken over by another administrator.

And when they “wind up” their plans, they must do it based – in today’s dollars – on what the plan will owe current and future pensioners for years to come. It’s not surprising then that the plan is considered in the red, or insolvent. In other words, the near-bankrupt employer cannot afford to pay out what it will owe its workforce, and the pension plan becomes a liability just like other debts.

The Communications, Energy and Paperworkers Union represents about 150,000 workers in major economic sectors, including forestry and media, two sectors hard hit by bankruptcy filings.

Our union has been working with a team of experts to develop a solution that will prevent more Canadians from being forced to play the scratch-and-win pension lottery.

Our proposal to various levels of government for a national investment and pension fund turns on the idea that the pension plans of employers facing bankruptcy be allowed to continue to exist, under a government administrator, rather than being terminated.

Should the pension plan continue to exist, two things happen: If the plan has been hit by a sudden drop in financial markets, or suffered from poor management, it has time to recover with better markets and management.

Second, the plan is evaluated on what’s known as a “going concern basis.” In other words, it would be required to have adequate financing to pay out promised pensions in the future, instead of paying out the full value of all the pensions at once.

The investment and pension fund would immediately permit an increase to deferred and pension benefits in pay by 15 per cent to 20 per cent for a typical pension plan. For example, a retiree of AbitibiBowater who would collect 75 per cent of his pension if the plan was terminated, could now expect to get 85 per cent to 90 per cent.

The fund would have the same structure as the CPP and QPP and would require no injection of funds by different levels of government to establish the program, other than administrative costs.

This proposal would also provide a boost in a company’s restructuring efforts. For AbitibiBowater, it would mean that the actuarial deficit of the plan would no longer be $1.4 billion, but about $500 million on a going concern basis.

We are not proposing a weakening of pension laws and regulations to allow employers to put less money than they should into pension plans. This fund is based on a government guarantee to ensure that pension plans continue to operate, making all pension plans more affordable and viable.

The national investment pension fund is not a perfect result. But it’s a significant improvement over what we have now.

It provides employees with a guarantee of retirement income, and peace of mind during difficult economic times. It has a positive effect on a company’s balance sheet. And it gives governments the opportunity to solve a growing social and economic problem at relatively little cost.

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