“While the vast majority of pension plans have the resources needed to withstand the impact of COVID-19 on their investments, if a plan is forced to sell assets at fire-sale prices to meet its obligations, it will have a devastating effect. Pension plans that are forced to take this step will likely be left with substantial pension deficits that will be very difficult to eliminate." Bert Blundon, NUPGE Secretary-Treasurer
Ottawa (8 June 2020) — In a letter to Bill Morneau, the federal Minister of Finance, Bert Blundon, Secretary-Treasurer of the National Union of Public and General Employees (NUPGE) called on the federal government to provide interest-free loans to pension plans. This move would ensure that plans don’t experience problems as a result of the drop in the value of their investments due to the COVID-19 pandemic.
“While the vast majority of pension plans have the resources needed to withstand the impact of COVID-19 on their investments, if a plan is forced to sell assets at fire-sale prices to meet its obligations, it will have a devastating effect,” said Blundon. “Pension plans that are forced to take this step will likely be left with substantial pension deficits that will be very difficult to eliminate.”
NUPGE proposes that loans cover up to 12 months of pension payments
The National Union is suggesting that federal government loans cover up to 12 months of pension payments. These loans should be available to all pension plans needing help, regardless of whether they are federally or provincially registered. Including provincially registered pension plans reflects the fact that the financial capacity of the federal government is far greater than that of most provinces.
Federal government already allowing employers to delay some pension plan payments
The federal government has already changed the regulations to help pension plan sponsors (normally employers) with plans with funding deficiencies. Normally, these sponsors would have to make special payments to eliminate funding deficiencies. With the regulation changes, employers will not have to make those payments for the rest of the year.
If the federal government is going to allow employers that owe money to their workers’ pension plans, not to make payments to be consistent, the federal government should also be taking steps to ensuring that funding deficiencies don’t increase because pension plans were forced to sell assets during an economic crisis.
Defined benefit pension plans still best way to provide people with secure retirements
When discussing pension plans and COVID-19, it’s important not to lose sight of the fact that defined benefit pension plans remain the most affordable way to provide people with a financially secure retirement.
Defined contribution pension plans and people’s personal retirement savings have also been badly affected by the economic impact of the COVID-19 pandemic. The difference is that when defined contribution plans or people’s personal savings drop below what’s required to fund retirement, workers and retirees are on their own.
Because of the lower costs and greater security provided by defined benefit pension plans, the National Union continues to fight to defend and expand them. The enhancement of the Canadian Pension Plan (CPP) that is being implemented should be viewed as just a first step. More is needed, including a further expansion of the CPP and converting other types of pension plan to defined benefit.
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 390,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. — NUPGE