Short-term profiteering threat to workers’ pensions

“The idea that it is in any way acceptable to scrap defined benefit pension plans so hedge fund managers and others can make a quick buck is one reason income inequality is a growing problem.” — Elisabeth Ballermann, NUPGE Secretary-Treasurer

Ottawa (4 Aug, 2017) — A recent article in the Globe and Mail business section on the situation at Sears Canada provides some useful information for refuting claims that businesses can’t afford defined benefit pension plans.

According to McGill Industrial Relations program graduate Cole Eisen, between 2008 and 2016, $1.4 billion was paid to Sears Canada shareholders through dividends and share buybacks. At the same time the workers’ pension plan went from a $220 million surplus to a $110 million liability. As a result of that shortfall and the financial problems facing Sears Canada, workers are facing cuts to benefits.

Payments to shareholders may have fatally damaged company

Dividend payments to shareholders and share buybacks are only supposed to occur when a company is in good financial shape. But that wasn’t the case with Sears Canada.

Sears Canada has been in difficulty for some time and available funds should have been used to help the company get back on its feet or meet its obligations. Instead, money was used for payments to shareholders that were clearly unaffordable. In 2010, Sears Canada paid out $753.4 million in dividends, even though its net income was only $125 million. In 2012 and 2013 all of the company’s net income was spent on dividend payments.

As the Globe article points out, this is typical of the growing tendency to put short-term profit taking over the long-term strength of a company.

Those attacking defined benefit pension plans ignore excessive payments to shareholders

Whenever a company with a defined benefit plan runs into trouble, conservative commentators and think tanks use it as an opportunity to attack workers’ pensions. That happened with Sears Canada. But in their rush to attack defined benefit pension plans those commentators are overlooking the real problem – an obsession with short-term profits that is threatening to do real damage to the economy.

“Defined benefit pension plans are the most effective way to ensure people are financially secure when they retire,” said Elisabeth Ballermann, Secretary-Treasurer for the National Union of Public and General Employees (NUPGE). “The idea that it is in any way acceptable to scrap defined benefit pension plans so hedge fund managers and others can make a quick buck is one reason income inequality is a growing problem.” 


NUPGE

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

 

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