The appalling spectacle of Nortel's older workers and retirees facing the potential loss of their pensions is not just heartbreaking, it’s a social and economic disaster unfolding in slow motion.
By Larry Brown
National Union of Public and General Employees (NUPGE)
Ottawa (22 Jan. 2009) – Bail out the banks, bail out the big companies, bail out the economy. There is a lot of talk about who to help, and how to help those who are being hit hard by the economic crisis. But there is a huge group of Canadians that need to be assured that the economic storm will not destroy their lives.
In Canada, if people are affected by a natural disaster like a flood or a tornado, we accept the idea that the government should help them get back on their feet with disaster relief assistance. This same principle should apply to an economic disaster, especially for older workers and pensioners whose promised retirement savings are threatened by forces beyond their control.
In recent months, the National Union has called for governments to guarantee that pension plans will not go under, the same way that they have used public money to guarantee the health of our banks and their financial transactions. This would provide a greater real economic stimulus than guarantees to the banks could ever provide – the money that goes to retired workers is money spent directly in the economy. The more that money, spent at local businesses across the country, dries up the longer our recovery from this economic malaise will be.
This is not an academic question. The appalling spectacle of Nortel's older workers and retirees facing the potential loss of their pensions is not just heartbreaking, it’s a social and economic disaster unfolding in slow motion. These workers and retirees have paid into their pension plans during their years of service to the company with the explicit promise that they would receive a definite pension on retirement. Now they face the real likelihood that this promise might just evaporate into thin air.
If the Nortel workers and pensioners are left to deal with the fallout of Nortel’s bankruptcy and the loss of their pension security without government aid, close to 20,000 will have their promised retirement savings eroded, creating an abrupt loss of their standard of living and their purchasing power. This is as great an economic and social disaster as any bank going under, as any flood or windstorm could ever be.
Part of the problem in these situations is that other creditors, including the banks, rank higher in the pecking order than workers and pensioners. When a company goes bankrupt, usually the pension plan is considered an unsecured, general creditor. This means that when a bankrupt company's assets can not cover all the debts, workers and retirees in a pension plan that has a deficit are not going to get all of the benefits they were promised. Unfortunately, our laws rank workers and pensioners as low in the food chain, allowing other creditors to elbow them out of the way.
Ontario-based pensioners have the modest protection of the Ontario Pension Benefits Guarantee Fund, which backstops pension payments up to $1,000 a month. Ontario is the only province with such a plan, therefore Nortel retirees outside the province do not even have that. The Ontario fund, however, is now in deficit by $102-million so it is not clear how much of a guarantee it will provide to pensioners.
If the Nortel example isn’t enough, consider General Motors. It is well understood that the pension plan at GM is underfunded, perhaps as low as 50 percent funded. In the event of a bankruptcy, this would mean that pensioners at GM, after having been promised a pension during all the years they worked for the company, would be facing an economic disaster not of their making, but of huge impact on them. But as unjust and disastrous as it is to those pensioners, it also creates a cascading disaster for the overall economy as the purchasing power of thousands of Canadian seniors will suddenly be taken out of the economy.
These circumstances make it abundantly clear that governments have a moral and economic responsibility to guarantee that promised pension plans will not go under, just as they have guaranteed the health of our banks and their financial transactions with the use of taxpayers dollars. Such a commitment does not mean that governments would be called upon to provide every dollar of every pension fund. They would only be guaranteeing to make up the shortfall that a pension plan is facing. Sure there is a cost, but that has not been an issue for the government when it comes to stabilizing the banks. Why should it be an issue when it comes to stabilizing the promised pension benefits of thousands of Canadian seniors? The financial security of thousands of Canadian seniors is not less important than the financial security of the banking industry.
An immediate guarantee for pension funds does not mean that is all we should do. We need to establish a national Pensions Guarantee Fund similar to the one that exists in Ontario but with a much greater degree of financial stability. We could pay for this with a transfer tax on all stock transactions. If such a tax was set at an extremely low rate so as not to unduly disrupt the market (i.e. one tenth of one percent), we could still generate huge funds for the public good, including paying for the cost of pension guarantees in the longer term.
There are far too many workers in Canada who don’t have a workplace pension (over six out of every ten workers). If all a retiree has is the Old Age Security and the Canadian Pension Plan(CPP), that retiree will be living in poverty. NUPGE has advocated for a higher CPP contribution from employers without a pension plan so that employees without a pension plan can receive higher CPP benefits. We need that approach more than ever.
In the immediate future, though, while these important new policy initiatives are being established, we must guarantee that retirees and working people approaching retirement will not pay the price by losing their pension plans. Those pensions are the result of a lifetime of effort and savings by workers; those plans are the guarantee that workers will not live their senior years in poverty; those plans are a crucial part of our economy and absolutely deserve public support.
It is not acceptable that we allow corporate Canada to offload its responsibility and promised commitments for their workers' financial security in retirement. This ultimately will lead to having more and more working Canadians living in poverty in their retirement years and will place increased pressure on our public pension system. A secure, enjoyable retirement should be the right earned by workers for decades of contributions to their community and Canada’s economy. Under no circumstances should this right be taken away.