Pensions

Pensions Advocacy
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 require adjustment now. Advocacy for the changes necessary to fix problems may be required in a number of areas such as:
  • nonexistent or inadequate pension insurance, in case the plan sponsor defaults
  • lack of transparency on the funded status of pension plans (reporting requirements inadequate: frequency and discretion in parameters used for surplus/deficit calculation)
  • in bankruptcy (reorganization or liquidation) 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 that will be discussed in the future. 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 of plan sponsor bankruptcy
  • changes to Pension Adjustment formula pro- and retro-actively to reflect the risk of underfunding

Pension Reform brief was presented to the Ontario Expert Commission on Pensions on November 1, 2007- Problems and solutions for DB pension plans and a proposal for pension system revolution.

 The minimum requirements that real pension reform must address are:

  1. Encourage or require adequate retirement savings rate of Canadians
  2. Provide low-cost vehicle for professional management of retirement assets (without constraint of CPP cap and accept transfers from existing wound-up DB, DC or RRSP plans)
  3. Provide low-cost longevity insurance options to deal with longevity risk (provide lifetime income, as well as low-cost decumulation strategies for un-annuitized assets
  4. Secure existing commitments to already earned private sector DB pension plan benefits: by strengthening regulatory framework to prevent plan underfunding and modify BIA/CCAA to increase priority of pension plan shortfalls in case of sponsor bankruptcy.

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