Put money in pensions first, then pay out dividends

A report by the Canadian Centre for Policy Alternatives recommends that payments to shareholders, such as dividends and share buybacks, by companies should be limited if their pension plans are underfunded.

The report says pension regulations must expand to consider broader financial decisions within companies. It says in many instances, firms are complying with the minimum required payments under the rules, but are not making up the shortfalls in the pension plans as fast as they could.

Earlier this month, Hamilton Mountain NDP MP Scott Duvall tabled a bill to amend Canada’s insolvency laws so they offer more protections to pension plans, postretirement benefits and severance when a company is in deep financial trouble.

“We must fix the imbalances to current legislation and provide Canadian workers, retirees and their families the protection they expect and deserve,” he said.

Companies with defined-benefit pension plans have been hurt by the financial crisis and low interest rates, which have increased the amount of money they are required to have in their pension plans to pay future benefits.

When a pension plan is not fully funded, members could see their pensions reduced if the plan is forced to wind up.

The report noted that the pension plan at Sears Canada has a $267-million shortfall, but the retailer, which is in the process of liquidating, has paid $1.5 billion in shareholders in dividends and share buybacks since 2010.