Federal and Ontario Pension Feedback-Comments
The Federal and Ontario governments are soliciting comments on “Strengthening the Legislative and Regulatory Framework for Private Pension Plans” and feedback on the recommendations of the “Ontario Expert Commission on Pensions (OECP)”, respectively. The deadline for the Federal comments is March 16, 2009, while the feedback is on the OECP recommendations is due by February 27, 2009. I urge you to express your views and concerns on the reports and the current state of Canada’s pension system (completely broken) and perhaps even how Canada’s broken pension system has affected you.
Comments on “Strengthening the Legislative and Regulatory Framework for Private Pension Plans”
It is wonderful to see that the Federal government like various provinces and undertaking a study on pension improvements, but with last week’s bankruptcy protection sought by Nortel (in the interest of full disclosure- I am a Nortel pensioner) and the resulting expected impact of pensioners, you’ll have to excuse me for envisioning the legislators a little like Nero playing the violin while Rome is burning.
Years of inaction, followed by years of consultation will not solve the problem. Canada’s retirement income system may be affordable and sustainable, but certainly not adequate compared to other developed countries and pensioners do not have adequate legislative or regulatory protection. In particular the private sector tier 3 part of the system is crumbling, while tier 1 and 2 are lower than in other developed countries. There is no more time for studies; it is now time for urgent action!
The subject proposals still don’t fix significant shortfalls in current pension system:
(1) no requirement for annual solvency valuation (three years is an eternity in volatile economic times, when both company and pension plan can irreparably deteriorate,
(2) no pension benefit guarantee system (if government run insurance program would be in place (e.g. like in the U.K. and the U.S.), the resulting incentive for more stringent regulations and enforcement would have a better chance to prevent the current underfunding crisis and the disastrous outcome for pensioners when bankruptcy ensues),
(3) no protection of funding shortfall in case of bankruptcy (pensions are deferred wages and in case of bankruptcy/insolvency must be given equal protection to current wages),
(4) urgent need to implement a new national tier 3 pension system (a good place to start would be the recent proposal from C.D. Howe for a Canada Supplementary Pension Plan enhanced with Longevity Insurance option as described in my proposal to the Ontario Expert Commission on Pensions in November 2007,
(5) implement legislative changes to permit and facilitate creation of Longevity Insurance products (delayed payout annuity insurance products).
There are many other issues with Canada’s pension “system”. DB pension plans are essentially history, at least in the private sector, but existing commitments must be delivered on!
It is the government’s job to protect pensioners via: (i) a robust regulatory framework, (ii) aggressive enforcement of the fiduciary duties of administrators, trustees, actuaries, investment managers, regulators, (iii) governance- establish the necessary framework that prevents/minimizes circumstance of conflict of interest. (iv) replace provincial regulator (Ontario) with an effective national regulator
Feedback on recommendations of “Ontario Expert Commission on Pensions (OECP)”
Excellent work by the Commission! 142 recommendations just shows you that Ontario/Canada's pension system is not just dysfunctional, it is broken.
The single biggest problem with the recommendations is to maintain the current once every 3 year valuation (especially for SEPPs). 3 years between valuations is an eternity (e.g. Nortel)
My top 7 items in priority are:
1. Annual valuations (esp. SEPPs), coupled ongoing risk assessment of the sponsor's financial condition.
2. Encourage Federal government legislation to elevate priority of pension plan underfunding in case of bankruptcy/insolvency to a level equal to wages; after all pensions are nothing but deferred wages.
3. Replace regulator with an effective/qualified one.
4. Governance: enforce the fiduciary duties of the administrator, trustee, actuaries, investment manager, regulator, and disallow situations when conflict of interest may exist.
5. Increase pension insurance from $1,000 to $5,000 per month.
6. Fix CV practices that damage remaining plan members
7. DB plans are history, but existing commitments must be met; also it is time start working on the next generation pension system for Ontario/Canada, since the current one has failed those of us in the private sector. A good place to start would be the recent C.D. Howe proposal the CSPP.