Sears pen­sion ‘slap’ a key sav­ings re­minder

Medicine Hat News - - BUSINESS - DAN HEAL­ING

Sue Earl, a 38-year Sears Canada em­ployee, was shocked when she found out she would only ini­tially re­ceive 81 per cent of the value of her pen­sion as part of the com­pany’s in­sol­vency process.

The 64-year-old from Cobourg, Ont., had as­sumed her de­fined-ben­e­fit pen­sion was “money in the bank,” a guar­an­teed amount she’d re­ceive in re­tire­ment re­gard­less of the fi­nan­cial health of the fail­ing re­tailer.

But then, she also didn’t think Sears would can­cel the sev­er­ance pay­ments she’d been re­ceiv­ing since her store was closed last year — that’s what hap­pened af­ter it filed for court pro­tec­tion from cred­i­tors in June.

She said the other 19 per cent of her de­fined-ben­e­fit pen­sion is “up in the air.”

“Our let­ter said it would be paid out to us in the next five years, but that de­pends what they do with it, whether they wind it up or what’s go­ing to hap­pen,” Earl said.

“It’s just one more slap, re­ally. You lose your sev­er­ance and then you find out you might not get all of your pen­sion money.”

Per­sonal fi­nance ex­perts say the Sears case shows the risk of de­pend­ing too much on a de­fined-ben­e­fit pen­sion plan to pro­vide in­come in re­tire­ment if the plan is not fully funded and the spon­sor goes bust.

James McCreath, an as­so­ciate port­fo­lio man­ager with BMO Nes­bitt Burns in Cal­gary, says em­ploy­er­spon­sored pen­sion plans are a good thing be­cause they force peo­ple to save for re­tire­ment but when a com­pany isn’t healthy enough to fund them, it can re­sult in a lot of stress for em­ploy­ees.

“If I had a de­fined ben­e­fit plan, I’d cer­tainly sharpen my pen­cil on re­view­ing it to see if there’s an un­funded li­a­bil­ity and how that per­haps would im­pact my re­tire­ment,” he said.

Tony Sal­gado, di­rec­tor of CIBC Wealth Strate­gies in Toronto, says many don’t even know what kind of pen­sion plan they have, much less what their re­tire­ment in­come might be. “In­cor­po­rate some wig­gle room,” he ad­vises. “If you were to take a 10 per cent hair­cut on what you have through your re­tire­ment pen­sion plan, what other sources of in­come will you have avail­able?”

De­fined-ben­e­fit plans prom­ise mem­bers a re­tire­ment in­come usu­ally based on salary and years of ser­vice. But an aging pop­u­la­tion that is liv­ing longer has in­creased the cost of the plans at the same time that low in­ter­est rates have also in­creased fund­ing re­quire­ments, leav­ing many plan spon­sors with a short­fall.

Sears has been pay­ing $3.7 mil­lion a month to top up its un­der­funded de­fined-ben­e­fit plan, as re­quired by On­tario pro­vin­cial law, but has asked a court to al­low it to sus­pend those pay­ments while it re­struc­tures.

Mean­while, On­tario has pro­posed new rules that would see de­fined-ben­e­fit pen­sion plans it reg­u­lates not re­quire topping up as long as they are 85 per cent funded, down from the cur­rent 100 per cent.

In Cobourg, Sue Earl says she is re­ceiv­ing em­ploy­ment in­surance ben­e­fits and has started her Canada Pen­sion Plan pay­ments early to top up her RRSPs and pay down debt.

She has re­ceived a pay­out on the de­fined-con­tri­bu­tion pen­sion plan Sears started in 2008, but is still wait­ing for pay­out of the de­fined ben­e­fit plan it re­placed — both have to be rein­vested in locked-in ac­counts un­til re­tire­ment.

Her hus­band, Ralph, has a small pen­sion and, af­ter a “hard look at our fi­nances,” she thinks they’ll be OK.

“I mean, we’re not driv­ing Mercedes, we’re go­ing to drive our car into the ground. If we take a trip we’re go­ing to be bud­get­ing for it. I mean, we’re go­ing to have to be care­ful with our money.”

THE CANA­DIAN PRESS/JO­HAN HALLBERG-CAMP­BELL

Sue Earl poses for a photo at her home in Cobourg, Ont. on Sept. 9. Sue Earl, a 38-year Sears Canada em­ployee, was shocked when she found out she would only ini­tially re­ceive 81 per cent of the value of her pen­sion as part of the com­pany's in­sol­vency process.

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