Seniors advocates are optimistic that the federal government’s pre-election budget will include measures aimed at protecting private-sector pensions in the event of a bankruptcy.
Ottawa has been reviewing its options after Sears Canada’s 2017 bankruptcy left its pensioners with a 30-per-cent cut in pension payments and the complete loss of health and dental benefits.
Finance Minister Bill Morneau recently said his March 19 budget will include measures to support seniors, but he has not provided additional detail.
Improved pension protection is a top request from seniors advocates such as the Canadian Federation of Pensioners (CARP), the National Pensioners Federation and the Canadian Labour Congress, who recently sent a joint letter to Prime Minister Justin Trudeau calling for such a move.
The government has clearly given the idea some consideration. It launched consultations last year on several potential options that would encourage private-sector companies to ensure their pensions are well-funded. One option would allow for the creation of solvency reserve accounts, which would be separate from the main fund and would hold special payments paid by companies when a plan is underfunded. The company would have the benefit of being able to make withdrawals from that account when the pension fund is in surplus. Another option proposed by Ottawa would be restrictions on the payment of dividends by companies with large pension deficits.
“What we really want is some type of requirement that pensions be protected,” said Laura Tamblyn Watts, national director for law, policy and research at CARP, formerly known as the Canadian Association of Retired Persons.
“We’re a little agnostic as to how it precisely happens, but what we want to see is that Canadian seniors’ pensions are secure, whether that’s through insurance or through some other means. We want to make sure that seniors who have been paying into their pensions for their whole lives get that money out and I think we will see something on pension protection [in the budget].”
The Liberal-dominated House of Commons finance committee supported several of CARP’s recommendations in a prebudget report, including pension protection as well as loosening the mandatory withdrawal rules for Registered Retirement Income Funds (RRIFs) and an increase in benefits for low-income seniors who qualify for the Guaranteed Income Supplement.
The potential pension changes would be focused on pensioners with defined-benefit (DB) plans, which are traditional pensions that provide a regular payment to retirees for life. The number of Canadians who are part of a defined-benefit pension has declined to 1.2-million in 2017 from two million in 2007. A common alternative is a defined-contribution (DC) plan, in which workers and the employer contribute defined amounts to a pension fund. The size of a defined-contribution benefit in retirement is not guaranteed and is dependent on investment returns.
The federal government’s powers in this area are limited, primarily because the regulation of private pension plans and corporate governance is a shared jurisdiction with the provinces. Only about 7 per cent of private pension plans are federally regulated and about 10 per cent of corporations are incorporated under federal jurisdiction.
Representatives of pension providers have told Ottawa to proceed with caution.
The Association of Canadian Pension Management (ACPM) is urging the federal government not to do anything that would encourage even more companies to abandon their defined-benefit pension plans.
“Our view as an organization is that the best protection for pensions and workers is a strong employer," said Todd Saulnier, who chairs the associations’ national policy committee. "If [a new federal policy] eliminates more DB plans, then that’s going to be counterproductive. Or if it forces employers into bankruptcy, then that’s not going to be helpful, either.”
Mr. Saulnier said federal proposals related to special accounts for managing shortfalls and surpluses in pension funds would be welcome, but restrictions on corporate decisions related to dividends would not.
In a policy paper, ACPM said it is important to note that while there have been a few “high-profile” corporate failures over the past two decades that led to pension and benefit reductions, it is not a common occurrence.
“The sad reality, however, is that even in the case of a corporate failure that results in a reduction in DB pensions, we suspect that the vast majority of affected members and pensioners would have been worse off had they never had a pension in the first place,” the organization stated in a January paper. “For this reason, we suggest caution in creating any new significant disincentives that would push more corporations to abandon their DB plans.”