Promises to Keep

Periodically we hear news stories about employers in difficulty and the employees discovering that the pension promises on which they have relied are seriously underfunded and will not be met. The most recent examples are the NewPage and Bowater Mersey mills.

In part this can occur because of disappointing investment results. But the present regulations make the problem worse by permitting employers to make promises without having to pay for them, and not requiring disclosure of that fact to employees. Those unfunded promises include “grow-in”(which protects early retirement benefits in the event of plan windup) and inflation indexing of retirement benefits.

Perhaps the single most important recommendation of the Province’s Pension Review Panel was the simple idea that employers would be required to fund all pension promises. Annual disclosure to employees would be required if a benefit would only be provided if funding circumstances permit or if the employer has the unilateral right to withdraw the benefit. To do otherwise perpetuates the government mandated deceit of pension plan members.

It is thus most disappointing that the proposed amendments to the Pensions Benefit Act appear to largely continue this practice. The slight exception is that inflation indexing for future accruals is to be funded, but it will take decades for that to fully work its way into the system.

Many positive changes are proposed. Members are to receive annual disclosure of plan funding status. Jointly Sponsored plans and Target Benefit plans (which retain many of the positive aspects of defined benefit plans while providing cost certainty for employers) are to be facilitated. Phased retirement is to be permitted. A cost-effective province-wide or nation-wide pension plan for those who do not have one is to be pursued.

But these are over-shadowed by the apparent refusal to insist that promises must be adequately funded, or else described as unfunded hopes.

The Minister should give this matter further thought. The draft regulations have yet to be released so there is still time to get it right.

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Reference Material

The Nova Scotia Pension Agency is the administrator for all three plans mentioned here. The agency has an excellent website (novascotiapension.ca) that provides good information on both benefits and funding status. The information taken from there for this report has been simplified to improve readability, which means some of the characterizations are approximate. Readers interested in further details will find the website a worthwhile visit.

This document from the CD Howe Institute shows the comparable status of the federal government’s plans–an even uglier picture.

What happens when you don’t deal with the problem:

For additional reading, have a look at these articles “California’s $500-billion pension time bomb” by David Crane and “Going for Broke in L.A.?” by Tim Rutten as they examine the current affairs and potential damages regarding California’s unfunded pension payouts.

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  • A further fault the new act perpetuates is lack of by right involvement of pensioners in governance of pension plans. Pensioners may be beneficiaries of the majority of a plan’s assets yet have little say in their management. That is reserved for active employees (members), and employer. Advisory committees on which pensioners will have membership count very little in actual governance.

    The very description of pensioners as “former members” entrenches this practice. As we see with NewPage when the plan runs into difficulties pensioners have to scramble to form an association to protect their interests. Such protection should be built into plan governance from the start. The new act harmonizes with Ontario legislation, but that is a low bar to leap on the path to improved protection of pensioners interest.

    Randy Barkhouse | November 18, 2011

  • You were too easy on those three cranky old men who delivered their report on the gold plated MLA pensions. The Three Stooges, of long ago Hollywood movies could have done a better job. We all know or ought to know the elephant in the room was the spectre of Defined Contributions instead of Defined Benefits. It was enough to make the civil service pensioner negotiators shudder.
    Not that many years ago , government pension plans could only invest in safe but low yield government bonds. The stock market was performing so well that employee unions bargained for and won the right to have their pension funds invested in the stock market. The employer would make up any shortfall. In the case of government plans ,that you and me. Today the stock markets are world wide entities that are
    highly unpredicatable, often on a daily basis. Ask the Greeks and Italians.
    Defined Contributions for all future employees is the way of the furure.

    Name | November 18, 2011

  • My previous comment was forwarded inadverently before I had fully developed my thoughts.However I will let it suffice for now.
    ,but will wonder how we can expect legislators to correct the system when they are the biggest beneficiaries of unfunded pensions
    I find it ironic that the two mayors decrying the pension problems of the paper mill workers are both recipients of the gold plated MLA pension plan

    Bill Fenton | November 17, 2011

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