In his own words, Prime Minister Stephen Harper stands up for those “who work hard, pay their taxes and play by the rules.” The Canadian Federation of Pensioners (CFP) wholeheartedly supports the principle. Indeed, our members worked hard — many for over 30 years — and played by the rules. They were employees at some of Canada’s biggest private-sector companies. CFP members chose to participate in their company’s defined benefit pension plans, deferring wages so they’d be secure in retirement. Now they’ve retired and enjoy a modest pension. After a lifetime of work, that’s fair.
But, as I write, Finance Canada is undertaking a public consultation regarding legislation that would permit certain private sector employers to convert existing pension plans into a “target benefit” model. This is not a small change. So, how does this new kid on the (pension plan) block measure up?
Unlike defined-benefit plans, a “target benefit” plan does not guarantee a pension benefit. Instead, as the name implies, benefits fluctuate around a desired target, depending on the financial performance of the plan, and the willingness of the employer and employees to contribute to the plan. While proponents of this type of plan use words like “shared risk” to describe target benefit plans, in fact, much of the risk that the employer bears in a defined benefit pension plan is shifted squarely onto the plan members in a target benefit plan.
As an additional tool available to employers to provide retirement security for their employees who have no pension plan today, the target benefit model has much to offer.
However, the situation is very different if a target benefit plan is introduced by an employer that already has an established defined benefit plan. Pensioners from these workplaces have earned their pensions through deferred wages over their entire work lives and planned their retirement based on the commitment from their employer that a specific pension amount will be paid to them in their retirement years. If their promised pension suddenly is less certain, which is surely the case for a target benefit plan, then the commitment made to them is broken. Having that pension reduced, under the terms of a replacement target benefit plan, is the same as an employer clawing back already earned wages. Not fair.
We all know what fair looks like. An Ipsos Reid survey conducted last week found that while a substantial proportion of Canadians (44%) recognize the difficulty employers may have in provide pensions for their employees and pensioners, many more — more than nine in 10 Canadians (94%) – agree that employers should live up to the commitments they have made to pensioners and employees.
And Canadians are clear that they expect their Government to make sure this happens: 92% agree that in developing a new pension framework, the federal government should ensure that companies honour the commitments made to pensioners and employees.
The Government’s consultation paper, however, envisages that a private sector sponsor could convert its defined benefit plan to a target benefit plan and eliminate the defined benefit plan. In fairness, this should not happen. If conversion from a defined benefit plan to a target benefit plan is permitted, consent to conversion must be an individual, informed choice, and the defined benefit plan must remain in operation, unchanged, for those who do not choose to convert. As it stands, the consultation paper speaks of “consent,” but does not provide any definition.
It is up to the government of Canada to take measures to ensure that its proposal for target benefit pensions does not leave current pensioners vulnerable to having changes forced upon them. Unless individual plan members, including retirees and their beneficiaries, are given the option to remain in their existing defined benefit pension plan, the Government itself would be breaking faith with Canadians who have worked hard, paid their taxes and played by the rules.
Source: National Post