Private pensions are fading fast

Historic CPP deal comes just in time for many

It’s human nature to ignore pension tensions. Until the money runs out.

Full credit to our political leaders for coming together to expand the Canada Pension Plan this summer, recognizing that a looming retirement shortfall requires a longterm remedy.

Their historic CPP deal came just in time, for time is running out on conventional pensions in the private sector.

Long live the CPP. Private pensions are on life support, and fading fast.

If anyone still doubts the need for concerted action, or ignored the high stakes negotiations over the summer, here are two bracing wake-up calls from just the past week:

First, unionized autoworkers at GM made an unprecedented concession to relinquish full pensions (which pay a defined benefit upon retirement) for newly hired employees. The agreement, ratified by Unifor members over the weekend, marks the end of an era in retirement security.

It’s hard to fault Unifor for throwing in the towel after long insisting on pension parity among all workers. They were among the last major private-sector unionists to cling to full-fledged pensions that have been phased out across North America.

A second development last week tells the story of our pension peril from a different angle: While autoworkers were surrendering full pensions for new hires, steelworkers were fighting to rescue and reclaim their full defined benefit pensions.

But the way in which their pensions are being salvaged portends a losing battle. When U.S. Steel Canada filed for creditor protection, after taking over Stelco’s assets, it revealed a pension shortfall of more than $800 million. Upon insolvency, that liability would land in the lap of the province’s littleknown Pension Benefits Guarantee Fund.

It has always been something of a Potemkin pension fund, with little to prop up its facade of protection. Like an undercapitalized bank, the pension fund could not withstand a run on its assets if too many private pensions failed — requiring replenishment by the provincial government and all other employers in the province.

That’s why Queen’s Park has long been loath to see a big bankruptcy deplete the fund. Behind the scenes, it recruited former TD Bank CEO Ed Clark to find a way to rehabilitate what remains of the old Stelco operations so that those pension liabilities could somehow be avoided.

After drawn-out court hearings and closed-door negotiations, a New York investment firm signed a deal last week with the provincial government to invest hundreds of millions of dollars to save 2,500 jobs — and prop up those pensions a little longer. The United Steelworkers union, which had been deeply skeptical of previous bidders, likes this proposal because it provides a pension infusion.

While that may sound like good news for pensioners and workers, it is surely just a stop-gap — neither a sure thing for the former Stelco workers, nor a safe bet for the taxpayers who could be on the line if it all unravels.

We don’t know how the story will end. The only certainty is continued uncertainty for private-sector pensions, no matter how much union muscle is brought to bear. Private DB pensions are dying, and our only recourse is a reliable, diversified public DB pension in the form of the CPP.

All the more reason to herald the CPP expansion agreed to this summer after nearly a decade of drawn-out negotiations and footdragging by the previous Conservative government in Ottawa.

Details of the CPP reform, announced this month, will take years to phase in. In truth, it is a relatively modest and staged increase after a half-century of virtual stasis.

It is a promising start. But decades from now, as more private sector plans die off and today’s young people grow older, Canadians will wake up to the need for a more robust round of CPP expansion to pick up the slack.

It’s only human.