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Employers using crisis to push for looser regulation of how pension workers' money is managed.
by Ish Theilheimer with Stephanie Fahey from www.HarperIndex.ca
Ottawa (24 April 2009) - The Harper Conservatives are poised to make small but high-impact changes to pension law that will let companies duck pension responsibilities and use pension money for other purposes. At the same time, they government has rejected a method it could use immediately to inject $200 billion stimulus into the economy through pension insurance.
With the economic crisis, Canadians in every trade and profession have become worried about their pensions and the stability of the plans that back them.
"I don't think there is a pension plan in this country that is not in some serious jeopardy at this point in time," NDP pension critic Wayne Marston (Hamilton EastStoney Creek) told a Parliament Hill news conference. "There isn't one that you can say is secure." The NDP has introduced legislation (C-361) intended to ensure public sector pensions investments are low-risk only and that executive bonuses are carefully supervised.
Joel Harden of the Canadian Labour Congress (CLC) says companies are blaming the economic crisis for underfunding of their pension plans. Although there are companies in serious trouble, research by the CLC shows that as recently as last November, corporations in Canada had 18.3 times as much in assets as in pension liabilities. Pension fund money, he says, has been shifted on balance sheets to other purposes.
"We also know that employers for many many years have been building up surpluses on their balance sheets so that they could gamble that financial economy," says Harden. Now, with the market collapse, they are claiming they have no money to meet their pension obligations. The CLC wants legislation that prevents the diversion of pension money and prevent employers from walking away from obligations.
The government is proposing a small accounting change that will let employers say their pension funds are worth more than they are. Under the rules, companies with enough money presumed to be in pension funds can use money for other purposes. "We're talking about money that ought to be going into pensions that is being diverted elsewhere," says Harden. "For financial investments for executive compensation, we don't know." Another small change with massive impact is to give companies "flexibilty" to invest pension fund money without repayment for a longer period of time - ten years, instead of five.
The CLC and NDP are promoting the same sort of public insurance for pensions as with bank deposits and other services, and say it would be affordable. "For all the important things in our life, we need mandatory insurance," says Harden. "For our house, for our car, for our job, workers compensation or EI - unfortunately most people cannot collect on their EI insurance. But for some reason for the longest time, apart from the province of Ontario, where there's a minimal insurance system, we don't insure pensions. In moments like this we really realize why it's so important to do so."
Conservatives say insuring pensions will give companies incentive to be irresponsible, knowing they'll be bailed out by the government if they fail. In the US, abuses have occurred with pension insurance, says Harden, due to lack of regulation to keep pension funds from going into financial speculation and extravagant bonuses.
He points to the Air Canada story with concern. "They were given more flexibility in their pension funding when they filed for bankruptcy protection in 2004. The workers there took massive wage cuts to protect their defined benefits secured pension plan. They were told that would happen.
"What's happened since? Air Canada got that flexible pension funding in the five years since, they have paid out massive bonuses to executives, both to Robert Milton and Monty Brewer, who got severance packages of 46 million dollars and 32 million dollars respectively. They've sold off two billion dollars in assets. They've split the company into five parts, and they've underfunded the pension. The pension plan today at Air Canada is underfunded to the tune of 3.2 million dollars.
Harden calls this a "cautionary tale, when you allow employers more flexibility in their pension funding" and no regulations concerning executive payouts. "When you give people flexibility with no oversight, we worry that pensions will be lost with lateral damage. Our view at the moment is that we have examples that suggest permanent across-the-board, weaker pension rules are not what we need right now. We need stronger pension rules. We need an improved Canada Pension Plan. We need measures that will help people have more pension income and more pension security. Sadly what the federal governments discussion paper suggests is that the government is actually listening to the employers now, and inching in the other direction."
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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
More information:
1. Pensions Commentary: Don't let the fox guard the henhouse when dealing with pensions
2. Pensions Commentary: Pension debate must focus on expanding our public pensions system