Bill C-27: Another erosion of Canadian pensions
Bill C-27 An Act to amend the Pension Benefits Standards Act, 1985 was quietly introduced in the House of Commons on Oct 19h, 2016. The Bill was introduced without notice or consultation with Canadians, pensioners, or unions, and contains measures that directly contradict election promises to improve retirement security for Canadians.
If enacted, it will have serious negative implications for existing private and public-sector defined benefit (DB) pension plans in every jurisdiction in Canada. Bill C-27 represents a dangerous and immediate attack on future and current retirees defined pension plans.
The Harper government proposed a similar target pension plan “shared-risk” proposal in 2014. The Harper plan proposed that employees and employers would jointly manage a plan aimed at collecting defined contributions to achieve a specific benefit (target) in retirement. The plan would allow a reduction of accrued benefits (illegal under the Pension Benefits Standards Act) if the plan ran into actuarial difficulty. Current employees and retirees of the target plan proposal would have to “share the risk” and therefore be subject to a reduction of pension benefits.
In April 2014, the Harper government launched public consultations on introducing a target benefits (TB) pension plan framework. Retirees and other pension stakeholders strongly opposed the proposal and the government was forced to withdraw the legislation.
Bill C-27, which contains much of the Harper government’s proposal, would immediately affect federal private-sector plans and Crown corporations. However, it will fundamentally alter the pension landscape across Canada. It will set the new standard for pension reform across the country, and it will accelerate the erosion of decent pensions in both the private and public sectors. Employers and the pension industry are paying close attention to Bill C-27 for this very reason. If the federal government signals that employers in one sector are no longer legally required to live up to their pension promise to workers and retirees, employers everywhere will demand the same treatment.
Bill C-27 would amend the Pension Benefits Standards Act to provide a framework for the establishment, administration and supervision of TB plans. Bill C-27 would undermine already-earned or “accrued” benefits which currently are legally protected, and may not be retroactively reduced. The bill would remove that legal protection, and encourage the proliferation of TB plans instead, potentially lowering benefits for both current and future retirees. Employers would also be allowed to persuade individual active and retired plan members to surrender their earned DB benefits in exchange for less secure, less stable TB plan benefits.
The government argues that employers cannot unilaterally make changes to existing workplace DB pension plans. It is true that Bill C-27 requires individual workers to give their consent to give up their DB benefits. Employers will reap huge benefits if plan members can be persuaded to surrender their DB benefits.
To convince their employees to surrender these benefits, employers have a wide range of carrots and sticks they can use to persuade DB plan members to give up their legally-protected benefits. Employers can offer gifts, perks and promotional opportunities and provide additional workplace training. More likely, employers will use threats such as potential job losses and reduced hours of work, reduced investments, scaling-back benefits and even threats of lockouts, restructuring proceedings, or bankruptcy, if DB plan members don’t surrender their benefits for the good of the company. The city of Hamilton has witnessed this scenario first hand.
It must be noted that the approach proposed by Bill C-27 is already proving to be a failure. Introduced in 2012 by the New Brunswick government, New Brunswick’s legislation allowed conversion of both private-sector and public-sector DB plans to so called “Shared-Risk” TB pension plans. Plan conversions have resulted in class action lawsuits, constitutional challenges, and plummeting defined-benefit plan membership.
The Target Benefit “Shared Risk” pension plan proposal is not the solution to create a secure and sustainable pension for retirees. Target benefit plans will have the effect of watering down existing DB plans. Governments and companies that currently offer DB plans will be encouraged to adopt TB plans that will cost employers less while offering workers less and taking all the risks.
Instead of proceeding with Bill C-27, the federal government should actively encourage all private-sector and public-sector employers to introduce, maintain and enhance workplace defined benefit pension plans. That’s the real solution for retirement security.