Idea alert

by Aaron Wherry

Jack Layton talks pension reform.

NDP Leader Jack Layton is proposing a national pension insurance program to protect workers whose companies go bankrupt and leave retired employees in the lurch. The self-sustaining program would be funded by employer contributions and guarantee pensioners $2,500 per month in the event their plan is wound up.

Layton says other countries, including the United States and the Netherlands, have similar programs that adopt so-called orphaned pension plans. The NDP is also proposing an increase to the Guaranteed Income Supplement for low-income seniors – a measure that would cost the federal treasury about $700 million a year.




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Idea alert

  1. He's joking right? Employer contributions? A new small bussiness tax?

    After howling about a sensible increase in EI premiums after a two year freeze ?

  2. Here's a better idea. How about people don't tie their pensions to the company they work for. It's not like Nortel or GM should have been in the business of managing people's retirements in the first place. If the company didn't have to fund the pension they could pay the employees slightly more and then the employees can put that extra money away into their retirement savings. That way, if the company goes under, the employees have already got their money out.

  3. Nortel employees didn't have that choice to opt out. Having a defined benefit pension used up their RRSP limits, so they couldn't properly fund an alternative. I'm glad you agree pension reform is needed.

  4. This is a common sense proposal routinely made by the NDP and then just as routinely rejected by whatever business-beholden Liberal or Conservative government happens to be in office. People who are owed wages and benefits should have the status of secured creditors and taxes, not unsecured creditors who know the risk they are taking in echange for a rate of return on their investment.

    As a separate matter, when a company chooses to pay its creditors and its directors but not fully fund its portion of an employee pension plan, that's called theft. Until w e make executives legallty accountable for these decisions in law (shareholders don't give a crap) they will continue to cheat our oldest and most vulnerable citizens.

    Let the great law and order government explain why that should continue.

  5. Actually they were given that choice several years ago. Many took it.

  6. Terrible idea. I much rather support a voluntary component to the CPP taking the form of a defined benefit pension plan, that employers and individuals could contribute to. This amounts to subsidization of public employees and upper-middle class private sector workers that still have defined-benefit plans. Why should everyone have to pay to guarantee pensions for a privileged few?

  7. Excellent point. I have friends who used to work for Nortel, and when they were given the choice to opt out of the pension plan, they seized the opportunity. Those who didn't found themselves (and their pensions) shackled to a sinking ship.

  8. Why not just require that all private sector pension plans be fixed contribution level plans rather than defined benefit plans?

  9. Doesn't Ontario have a pension benefits fund for that kind of thing anyhow? That is, assuming employers actually paid into the fund…

  10. Bang on. The issue here are creditor priority, plain and simple.

    And passing the buck to the provinces because they control pensions is a heaping pile of bull-diddy. It is the Federal Bankruptcy Act that must be reformed.

  11. would it not be a hoot if come this spring Harper says hey not a bad idea?

  12. Because that might make sense? Can't have that now.

  13. This plank of the policy seems particularly interesting: Creating a national facility to adopt workplace pension plans of companies in bankruptcy or in difficulty and keep them operating on a going-concern basis.

    Does anyone know where to find a more thorough discussion of the merits of protecting pensions through creditor priority rather than government intervention? It seems like a worthwhile policy debate.

  14. The pension plan I belong to ( I was a trustee for about a decade ) used to have a vesting
    limit of 10 years. An untold number of short-sighted people used to withdraw before
    the vesting period so they could take a ski trip or whatever. The plan now vests on joining.

    But I think we should think of more and better ideas why employers shouldn't have to
    fulfill their obligations to their employees. I'm sure governments will be happy to help.

  15. That is what is not-so-slowly happening now. It's also why a lot of people had their
    retirement blown with the stock market crash… make that crashes.

  16. I agree that the bankruptcy needs to move these people up, including making it possible to for them to sue directors. I also think defined benifit programs should be banned, a promise that cannot be kept, save companies and workers from each other in a co dependent lie.

    That fixes things going forward. But what you do about today is another matter. I feel for those Nortel workers but my family went through it as well when Massey Ferguson went bankrupt. You survive…

    Defined benefit is a lie.

  17. The market crash hit defined benefit plans as well, just it makes it worse because those companies now have to take cash used for productive things, like investment and steer back to repairing a pension plan.

  18. they do.

    That the Nortel shortfall might blow the whole thing out of the water is another matter.

    All comes down to finanical regulation and whether it should be a provincial or federal responsibility. A topic that is currently growing in the background, should there be a re balancing of powers so the feds are responsible for the economic union and the provinces the social union.

    This conversation is only just beginning among many many threads

  19. I was in a fixed contribution plan that had several investment options from high to low risk. Those who put their pension accounts into high-risk options were warned about it. It's no different than the choices one makes with an RRSP.
    I would assume that the funds in fixed contribution plans belong to the employees, not the company, so those funds would not be available to settle bankruptcy claims.

  20. Style,

    While I dont agree with Leo his blog is a bit of a clearing house for things. You may agree with him or not, your choice but it is as good a place to start as any to identify the issues and find your way to different resources. He has a point of view, not a bad thing, but he deifintiely is one of the central places where you can find inforamtion and start to make up your own mind.

    http://pensionpulse.blogspot.com/

    Happy web crawling

  21. Admit it, Dakota – you miss Kady.

  22. If they had been funding their plans in accordance with their obligations instead of
    playing games to puff up the value of their executive options I'd have some sympathy
    with that. But I don't.

  23. They do but, my understanding, from what is happening to my dad is they will only guarantee the first $1000 per month, and then reduce whatever the retiree is receiving over and above that. So if the pension is 70% funded at valuation and you were entitled to $1500 per month you get $1350. $150 per month is a big hit to a pensioner.

  24. The other problem that needs fixing is when someone retires while a pension is fully funded, and years after planning his or her retirement on that promise, the company is sold and then resold and eventually goes bankrupt. The pensioner by this time has no relationship whatsoever to the company that is making the contribution decisions (or just not contributing is more like it) and should be protected in each transfer of assets and liabilities. Grandfather the grandfathers and put them ahead of all the creditors.

  25. i love that happy, secure workers are not considered 'productive'. oooh sweet tunnel vision.

  26. Why couldn't Kady have stayed here and…nix that. I don't dislike the CBC[tv] that much.

  27. Not just to puff up the value of their executive options, but to hoodwink potential investors into thinking that a valuation of the company that includes pensions funds is a realistic one.

  28. And bankrupt the treasury. Great idea.

    Why is the state supposed to get between a bargain freely entered into between workers and owners ? Instead of making stupid political statements on issues which have nothing to do with the welfare of those whom they pretend to represent and defend, union leaders should start learning some actuarial science. Or hire some actuaries.

  29. Sorry, tobyornottoby, I misread. You are talking about making preferred creditors rather than state rescue. My bad.

  30. Less personal responsibility. More taxes. Another NDP idea.

  31. The other thing to consider with a fixed contribution level plan is that there is no government involvement, no need for a 'pension insurance' program, and no need to collect additional taxes from employers to fund that insurance program.

  32. What in hell do polls have to do with a discussion on pension reform? Duh!

    It was Kady, and sometimes Paul Wells, that dealt with polls.

    Now….back to the real discussion of pension folks.

  33. No you are misinterpreting. The pension money being unproductive is about having to put money into something that really nothing to do with the business and its about paying for something "twice" because of the market fall.

    You dont believe that a company is going to divert money from some other product focussed on expnsion or improvement or whatever else if it has to do some unplanned
    "top up"

  34. I wonder what would happen if come this spring harper submits another bill with the buidget that protects pensions and Jack likes it – ROFL – poor Iggy!

  35. Bobby Rae. If you hold your nose and go back to read Shooting the Hippo, you'll see why.

  36. Bobby Rae. If you hold your nose and go back to read Shooting the Hippo, you'll see why.

  37. If employees are aware that they … and they alone …. are assuming all the risk, and are prepared to
    put the time into the long learning curve required to manage the investment side … well ..

    I have two brothers-in-law, both .. like me … now retired.
    One was in a DC plan and moved to a self-managed investment fund. Lost 40% last year.
    The other worked for an employer who matched contributions to an RRSP. Lost 50 %.
    I'm in a fully-funded DB plan (long story ). I lost 0%.

    Over time, a DC plan might well do better than a DB. But there is a much greater risk that it won't.

  38. I assume that opting out meant that they could take the present value and move it into a LIRA, as well as receive ongoing contributions that were managed by the employee (or some other person outside of Nortel).

    What was the reason that those Nortel employees were given the choice of sticking with the existing pension or opting out?

  39. i don't think i am misinterpreting vince. i agree that the money could be better spent in a perfect world. i also know, as you do, we don't live in a perfect world. i also believe that a worker that has a stable, secure pension is likely less apt to be worried about said pension, and that has positive effects on that lead to increased productivity, than an employee who figures that the company may bugger his pension maliciously or via good ol' fashioned incompetence.

    so, while I think Jack's is not near brilliant when it comes to ensuring that workers get their pensions, i do not see having to divert a relatively small % of a company's money to ensure its workers have a stable pension as unproductive.

  40. snm,

    I see where we are at cross purposes now. I was referring to the big undfunded liabilities that happen when the market makes a big move down. This can be large amounts of dough to top up shrtfalls in defined benefit programs. I was definitiely not talking about companies paying into some kind of pension plan. My preference is that they pay into a defined contribution plan rather than defined benefit.

    The unproductive piece I am referring to is the catch up companies have to do when the market leaves the returns on the plan short. Then we arent talking an extra 1 or 2 % of the wage bill but a few years profit or worse to make up the shortfalls……Even if Nortel was selling lots of eqipment its pension pan had a massive underfunding in it in the 100's of millsions. Ford has it in the Billions and it is one of the things that choked GM

  41. sorry vince, that was likely my fault for not reading carefully enough. yes, i certainly agree that those kinds of major market shifts are not going to be made up in anyway that does not hurt both the workers and the companies.

    that said, i am still not sure i am on the same page as an only defined contribution plan, as opposed to a defined benefit plan, without some secondary mechanisms (e.g., avg actual benefits paid threshold maybe?).

    thanks for the cordial clarification

  42. The plan I was in didn't require much of a learning curve at all. The various investment packages were managed by a large investment company, and there were several choices of packages ranging from low risk to high. One could switch from one plan to another with no penalty. The company explained each option in great detail, provided counselling to anyone still confused, and made current investment return information available. I would say that employees fully understood the implications of their investment choices. It gave them a much greater sense of control over their pension investment and helped them develop the kind of skills they would need after retirement to manage their investment funds. An accountant to whom I showed one of my year-end reports was amazed at the returns I was getting.
    Didn't mean to go on and on about this, but it just seems to me that there are better options for employee pension plans than yet another layer of bureaucracy and taxes.

  43. The government has an RRSP program, CPP/QPP, OAS, age-related income tax deductions, the Canada Health Act supporting provincial medicare programs serving so many of the senior citizen's health needs, and probably a bunch of other preferential treatment of the retired. And that is just at the federal level.

    Private pension goes bust, and of course Jack wants the government to bloat itself up with another program. Carry on, Jack. Don't ever change.

    Question for a bona fide Dipper: Is there ANYTHING in society that should be left to the private sector? Anything at all?

  44. We don't follow orders from you.

  45. Not a bona fide Dipper but … there are any number of things the private sector does well.
    The technology I'm using right now is one of them. And when they do it well they should be
    respected and rewarded appropriately.
    But when they abandon their contracted obligations to their employees all bets are off.
    Who ya gonna call ??

  46. If anything was done illegally, call the cops.

    Otherwise: Dear Nortel employee, your last several years of employment was, well, we're not sure why you were there in the first place, all tens of thousands of you, but the company was imploding. Be thankful your paycheques cleared for as long as they did, thanks to an insane amount of $$ sucked from investors foolish enough to believe, like you, that you worked for a viable company. Your paycheques came from these hosed investors until no more was left. Your pensions are now as poof as the investment of shareholders. As a Canadian, however, you shall not starve, homeless. But the taxpayer of Canada does not owe you a Caribbean cruise to interrupt the monotony of your eight-week sojourn to Florida every year. Deal with it. And get in the proper line as creditors: if there's any flesh left on the skeleton when it's your turn, you may have a nibble.

  47. Well, wasn't that a grown up response.

    I was interested actually in what the folks were thinking and saying about the pension issue.

    Now, go get your cookies and milk, then go to bed.

  48. I think that if there is any lesson from the financial crisis, it is that socializing risks is dangerous. When you give companies and individuals soft landings from fiscal insolvency, it encourages them to take risks. An ironclad pension guarantee is an example of one such thing (particularly when it is at a rate that, for maybe half of all Canadians, would be higher than their actual pension).

    What we need is greater individual control over pensions. Individual contributions should not be financing a company's losses elsewhere. Similarly at the federal level, our CPP payments shouldn't be viewed as ordinary tax revenues. Now you can create a big oversight committee, or, you can give individuals the ability to take their money out prior to retirement. I prefer the latter, as it is insulated from regulatory capture – and nobody is better at watching money than the people that rightly own it.

    Canadians have unprecedented levels of credit card debt, student loans, etc. Yet most of us are in jobs, paying into pension plans with much lower growth rates than the interest being paid on debt. What we need is real social security reform, not yet another legacy (one which will cost a heck of a lot more than 700 million/year once the boomers retire).

  49. I agree, remove the tool or ensure they keep up, but you have to live the consequences of that

  50. It works both ways, so I wasnt clear enough.

    I admit I may be wanting to toss the baby out with the bathwater, but the defined benefit plans are so open to abuse and mismanagement that I think they arent correct. Executive plans seem to be run differently. I must say that I find it offensive that many of the senior guys get these eormous pensions….I dont know why boards dont stand up to them. I would much rathe rthey get their benefit while they work. If those guys cant save for the future with their excess cash then there really is a problem. I would also prefer that public companies pay any pension to executives in stock that they have to hold for their retirement…..maybe they'll take a longer term view of their decisions today.

  51. you are correct, once the money is in the plan it is safe….the problem is always the unfunded "promises" that inevitably happen when a company gets into trouble.

  52. We still don't follow orders from you.

  53. Nicely put, MYL.

  54. not sure that you are so much 'throwing the baby out with the bath water' as probably accurately observing that the defined benefits ship has sailed. and i agree that the disparity between the abuse that undermines workers pensions in the face of executive compensation and pensions is breathtaking.

    i guess all i want to protect against is that the alternative to a defined benefit is not "pay the employees slightly more" and whatever happens or a minimum threshold of contribution that is in no way adequate to meet the objectives of these plans: to ensure that workers are provided with a modest but comfortable standard of living post-employment.

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