Pension funds left in deficit, while shareholders cash in

“What the CCPA report shows is that the retirement security of millions of Canadians is taking a back seat to windfall profits for well-heeled shareholders.” — Elisabeth Ballermann, NUPGE Secretary-Treasurer

Ottawa (01 Dec. 2017) — A Canadian Centre for Policy Alternatives (CCPA) report, entitled The Lion's Share, found that companies whose pension plans are in deficit are paying billions to shareholders in the form of dividends and share buybacks. CCPA looked at 39 companies on the S&P/TSX 60, a list of 60 of the largest companies listed on the Toronto Stock Exchange, with defined benefit pension plans. In 2016, those companies paid out a total of $46.9 billion to shareholders. That’s more than 4 times the combined $10.8 billion deficit in their pension plans.

“What the CCPA report shows is that the retirement security of millions of Canadians is taking a back seat to windfall profits for well-heeled shareholders,” said Elisabeth Ballermann, Secretary-Treasurer of the National Union of Public and General Employees (NUPGE).

Report shows attacks on defined benefit pension plans are based on false information

The size of the payouts to shareholders make it clear that companies can afford to maintain defined benefits plans for their employees. In almost all cases, the company can easily afford to eliminate any deficits in their pension plans. But instead, share buybacks, to push up share prices, and dividends are the priority.

Between 2011 and 2016, the 4 large banks with pension plan deficits spent $72.2 billion on dividends for shareholders and share buybacks. That’s more than 17 times the total pension plan deficit for the 4 plans.

Sears Canada an example of problem with pension plan deficits

Workers and retirees feel the impact of pension deficits if a pension plan has to be rapidly wound up. Sears Canada is just the most recent example of workers and retirees facing reduced pensions because the plan was in deficit when the company entered bankruptcy protection.

Pensions are deferred wages

The money in pension plans is money workers earned. Workers accepted that part of their pay would go into a pension plan to provide an income in retirement. When pension benefits are cut because of a shortfall in a pension plan the employer is defaulting on a debt.

In contrast, shareholders in corporations are supposed to be taking a risk. Their shares give them control over the company and the profits. However, the trade-off is supposed to be that they are the last to get their money back if a company runs into difficulty.

That changes when companies with pension plan deficits are able to make large payouts to shareholders — as Sears Canada did.

“When there are no restrictions on what companies with pension plan deficits can pay shareholders, pensions are put at risk to guarantee returns for shareholders,” said Ballermann.

Restrictions on payments to shareholders needed to protect retirees

As authors of the CCPA report point out, there are steps that can be taken to reduce the problem of companies leaving their pension plans in deficit while making large payments to shareholders. This includes placing restrictions on share buybacks or dividend increases for companies with a pension plan deficit.

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The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 370,000 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