(19 March 2009) - The first of two commentaries by James Clancy, national president of the National Union of Public and General Employees (NUPGE), on the challenges facing pension plans in Canada.
By James Clancy
National Union of Public and General Employees
When it comes to pensions, let’s not have the fox guard the henhouse.
A lot of attention during the current economic crisis has been given to funding shortfalls in major workplace pension plans. Over the past several months, this has been the primary focus of any debate and discussion dealing with pensions. The National Union recognizes this as an important issue. However, we are concerned that it is being used to attack decent workplace pensions of Canadian workers.
In this commentary I want to address how policymakers can help solve the temporary funding problems experienced by some of Canada’s largest private pension plans without placing the pension security of thousands of Canadians at risk. Previous Commentaries
Let me say from the onset that as important as this issue is, its narrow focus has distracted from the real pensions crisis in Canada – the fact that there are far too many Canadians without a private pension plan. This is the most critical issue we face with respect to pensions and the financial security of Canadian seniors.
In my next commentary I will address how we can better use our public pensions system to ensure greater retirement income security for all Canadians.
Pressure from corporations
We have been hearing a lot recently from the CEOs of some of Canada’s largest corporations – Air Canada, CP, Bell Canada, MTS Allstream, Canadian National Railway Co., Canada Post and Nav Canada, to mention a few – urging Ottawa to ease rules on those pension plans that are federally regulated. This 'Group of Seven' argue that ‘strict’ pension regulations are putting their companies at risk if required to immediately make enormous contributions to their pension plans to fund shortfalls.
Their view of the world is that the ‘generous’ benefits these plans guarantee to workers are part of the problem and that companies can no longer afford to provide their workers with such ‘gold-plated’ plans. Only recently, Gwyn Morgan, the former EnCana CEO, was attacking the pension plan of Canadian autoworkers in the business press. This is an individual who receives an annual pension of $1.8 million that EnCana estimates will cost a whopping $26.5 million to fund.
There’s no question that the recent market collapse has decreased the value of pension funds, although we have reason to be suspicious about claims of financial devastation if funding relief is not granted.
Many large corporations are using the current economic crisis as an opportunity to weaken pension regulation and insist on pension concessions from workers. This was not high on their agenda during the good economic times of the 1980s and 1990s. Many companies used their pension surpluses generated by high investment returns during the economic boom years to take regular contribution holidays, and even take cash out of the plans to go to other things like paying for the CEO’s stock options or even exorbitant CEO pensions. Without question, many of today’s pension shortfalls are a direct result of yesterday’s contribution holidays.
The cupboard is not bare
It’s also not correct to suggest that the pension cupboard is bare for most employers and plan sponsors. A November 2008 report from Desjardins Securities argued most Canadian pension plan sponsors (unlike U.S. plan sponsors) can fund their pension plan shortfalls.
The report explained Canadian companies have operating profits 18.3 times their pension liabilities, and an average firm could pay down their pension liabilities with just one to two months of profit, or a year's worth of operating cash flow.
Let’s also not forget that many Canadian corporations have benefited from large corporate tax cuts from the past and current federal governments have also largely hoarded market windfalls in recent years as cash.
Last fall the federal government responded to the pension funding shortfalls by offering temporary relief for federally regulated plans, granting them a 10-year period rather than five to help bridge differences between a pension plan’s assets and its obligations. The federal government attached certain conditions to the temporary measures such as requiring approval of the bargaining agent and the retirees.
'Group of Seven'
But of course that was not good enough for these ‘Group of Seven’ large corporate employers. They want permanent relief and less regulation. They want a pension regulatory system similar to the lax regulatory system that led to the current crisis faced by most US financial institutions. And ultimately, they want to offload their responsibility and promised commitments for workers' financial security in retirement solely onto their employees.
This approach will do nothing to protect the retirement savings of Canadian workers. Any reasonable solution to pension funding shortfalls has to be a two-way street – one that gives employers temporary funding relief but does not jeopardize benefit security of the plan members.
The National Union is of the view that it makes sense to consider a temporary extension of the time lines to some companies to help them resolve a plan deficit. But we also recognize there are risks to this approach, especially for the workers whose pension plans could be in jeopardy if the current market downturn continues for an extended period of time. If these extensions are to be granted, it is critical that workers be protected from these risks.
NUPGE pensions publication
The National Union addressed these risks in a policy paper titled Pensions and the Economic Crisis which we released last December. The paper stated that in order to minimize the risk to workers, the following legislative conditions should apply to granting an extension to the five-year amortization of solvency funding:
- Extending the five-year period for making up deficits should be on a case-by-case basis and should not extend beyond 10 years;
- There must be minimum catch-up contributions made each year to the plan;
- Requests should require approval of the bargaining agent, or the active plan members and the retirees - and allow full access to corporate financial records and any plans for restructuring; and
- Employers must be prepared to negotiate with the union to give it a greater say in the administration and management of the plan including joint trusteeship and shared ownership of any future surpluses.
These legislative conditions would go a long way to help protect the pension benefits of Canadian workers. They won’t guarantee pensions, but they will go a long way in protecting them. One thing is for sure, it’s a lot better than the deregulation approach. After all, it’s this ‘fox guarding the henhouse’ approach that got us in this economic mess in the first place.
But let’s be clear, this is only one small step in dealing with the real pensions crisis – the fact that there are far too many Canadians without a private pension plan. More on that in the next commentary.
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 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