Whose money is it anyway?

Dear Editor: After reading the recent opinion piece “Start acting on pension reform” by The Hamilton Spectator (Courier, Nov. 23), I’m posing the simple question that I believe goes to the core of the issue.

Whose money is it anyway? Why are Sears employees and others, past and future, put in the creditor line for the dregs of what’s left in the company, to get money earned, i.e. their money — not money they loaned to the company?

Pension reform should not be about putting them higher up the creditor queue, but about getting them out of queue altogether and legislating where pension contributions go and who controls them.

Private companies offer pension plans to attract a qualified and sustainable work force. These benefits are not a gift to the employee, they are earned. As they are earned, the contributions from employer and employee are credited to the plan. Under current federal pension rules, the company is then allowed to “manage” that money or, to put it less politely, to speculate on how much they need to have in the plan now — to cover future payments to retired employees.

When the current value of the pension plan has less than what’s needed to cover those future payments it’s called an “underfunded” plan.

By the government’s own most recent 2014 survey: “Financial Challenges for Canadian Defined Benefit Pension Plans” (Library of Parliament Research Publications) “between 2007 and 2014, there was a sharp decline in average estimated solvency ratio — the ratio of assets to liabilities on plan termination – for some 1,200 private federal DBPPs (defined benefit pension plans).”

This problem of underfunded pensions is not just about bankruptcies, as in the current case of Sears employees taking it on the chin, as did Canadian GM workers, Nortel employees, and others in the past. Reduced benefits can happen for retirees in any active “underfunded” plan.

Is there a solution? If pension legislation intends to protect the average retiree then one approach would be to take the plan contributions, year by year as they accrue, remove them from the employer’s control and place with a third-party trustee responsible for managing the money with a higher solvency ratio requirement.

Yes, this could reduce future pension “estimates” for current employees — but better to plan your retirement on the basis of what you know you have, rather than what you maybe, could, possibly, have.

John Ranney Registered Retirement Consultant

Kelowna