Changes Needed for Pensions-Make Your Voices Heard
Changes are brewing in the how companies have to account for pension liabilities (affecting shareholder equity) and how long they will have to make up the shortfall (ten versus five years). Requiring explicit balance sheet recognition for the pension liability may encourage companies to reduce the liability by additional contributions to the plan (or if the company is already considering filing for bankruptcy protection, it may end up the straw that breaks the camels back).
But what is an equally encouraging development is that Ontario has just established an Expert Commission on Pensions(November 2007). This commission will report in 2008.
Pensioners without a fully indexed government guaranteed pension plan are exposed to numerous problems, beside the corrosive effect of inflation over a lengthy retirement and the rapid disappearance of DB pension plans in general. Some of these exposures relate to pension rules or lack of them, that may have been appropriate when introduced, but now require adjustment.
Based on my understanding, changes necessary to fix problems may be required in a number of areas such as:
-lack of transparency on the funded status of plans (reporting frequency and discretion in parameters used for surplus/deficit calculation)
-nonexistent or inadequate pension insurance, in case the plan sponsor defaults (employer or employee paid)
-in bankruptcy, those impacted by pension plan deficits must line up with unsecured creditors
-pension/accounting rules discourage companies from overcontributing to plans (e.g. excess assets in plan are not “owned” by the sponsor, even though sponsor responsible for shortfall)
-commuted value not always fully transferable to an RRSP
-commuted value taken by an individual may not properly reflect underfunded status of the plan
So there are advocacy opportunities for legislative changes as well as new products. Some examples in addition to those implied above include:
-pensioner paid private insurance coverage for credit event of the plan sponsor
-pension priority in case plan sponsor bankruptcy
-changes to Pension Adjustment formula (RRSPs) pro- and retro-actively to reflect the risk of underfunding
-encourage industry to offer new products like Longevity Insurance plans which pay off if individual lives say past age 85.
The current state of pension affairs is not in the best interest of pension plan members or plan sponsors. This is your opportunity to have your voice heard. You can link to the Commission website and provide your input now, at: