Bad timing for report on pensions

Posted on November 22, 2008 in Debates, Governance Debates – Business – Bad timing for report on pensions
November 22, 2008. James Daw

Ontario employers will get little comfort from the Expert Commission on Pensions amid the stock-market crash.

Commissioner Harry Arthurs has tried to strike a balance between shareholder and worker interests: That was his mandate, and some of his 142 recommendations would have ended some employers’ aggravations in the 1990s. Yet, the world has changed and the timing of his report this week could hardly be worse.

Stock-market prices have been cut nearly in half, wiping out years worth of regular and special calculations. There is talk of recession everywhere.

So, these are hard times to bolster confidence in existing pension plans, or to raise hopes that more employers will start new plans. If General Motors could go down, how many smaller employers will sign on for obligations that stretch out a century or more?

Pension law is already stacked heavily in favour of protecting pension benefits once they are earned.

Even public-sector plans that split the cost and risk of a shortfall with employees cannot vary benefits earned to date. Only through bankruptcy can the pain of a pension shortfall be spread proportionally.

Sponsors face requirements to put up extra money when deficits emerge, with deadlines and stiff penalties for those who dally. Arthurs proposes some flexibility in this area, but those of his suggestions that could add to costs and administrative burden may well backfire.

“Taken in total, the recommendations would make it harder and more complicated to have a pension plan,” says Paul Forestell, retirement professional leader at consultant Mercer.

Arthurs would have Ontario pension sponsors deal with various public bodies: A beefed-up, autonomous and self-supporting pension regulator, a pension tribunal with enforcement powers, a government-funded pension champion that would gather information on pensions, a Pension Benefits Guarantee Fund that would tie premiums for a higher level of guarantees to a plan’s financial health and, finally, a pension agency that would sop up and invest pension savings for employees who move from job to job.

“It’s a pretty expensive solution,” Forestell says. “So, if I am an employer, I am thinking somebody has got to pay for it and I assume I am paying for it.”

In addition, Arthurs would have plan sponsors educate, inform and consult employees and retirees who would serve on an advisory committee. They would have to negotiate plan changes with employees to fast-track regulatory approval and provide more information about such things as funding levels.Arthurs would grant immediate entitlement to pension benefits, wider access to early retirement benefits among employees let go and the authority for regulators to force employers to protect retirees from “inflation emergencies,” while ignoring the potential that exists today of prices falling.

In sum, says Forestell, “all those things could make people (company executives) run faster from defined-benefit pension plans, (those that guarantee a certain percentage of pre-retirement earnings for each year of service).”

This could be a recipe for public resentment if the only citizens with a protected retirement income are current retirees, older workers and civil servants.

Thank goodness, at least, that Arthurs over-stepped his mandate by adding his voice to those proposing an expansion of the Canada Pension Plan.

That offers some hope for all those who have no pension plan, or could soon lose theirs.

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