Promises to Keep
Posted November 17, 2011
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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