“I’m in a Defined Benefit Pension Plan. What should I do?” – Part 1

Defined Benefit Plan

I passed a Sears store in Arizona this week and it really irked me. Thinking about the thousands of ex- employees and retirees in Canada who were blindsided by the closing of Sears Canada, and the pension benefits lost after so many years of dedicating their lives to their employer. It’s a shame that our legislation in Canada wasn’t strong enough to prevent the losses that are so personal to so many.

A quick look at CARP’s website this week (www.carp.ca/advocacy-priorities) reminded us of the need to support their “Put Pensioners First” campaign. Only 20,718 “supporters” have signed up to date, but every Canadian in a private Defined Benefit (“DB pension plan”) should be doing just that. Asking our Provincial governments to include or strengthen pension guarantees and our Federal government to give pensioners “super-priority” over creditors when a company fails.

DB pension plans provide a monthly income to retirees, as opposed to Defined Contribution (DC) pension plans that let you accumulate a pool of capital to be converted to a monthly income when you retire. (Most of you are familiar with RRSPs – they’re a form of a DC retirement plan). In theory, DB plans should give you more guarantees, while DC plans offer more flexibility, but include investment risk. The richest DB plans are those enjoyed by our public servants. As taxpayers, you and I are ultimately on the hook for those. But look at what has allegedly happened to Sears employees who were members of their DB pension plan. Around 16,000 of them could end up with reduced pensions. And, it’s hard to believe, but what Sears allegedly did may actually have been legal.

Just about forgotten in the underfunded DB pension issue are the employees of Nortel, some of whom lost both a portion of their monthly pension income and the indexing of their pensions — and who are still fighting in the courts.

The broader legal issue is that our federal bankruptcy laws give more protection to lenders than pensioners, and other than in Ontario, provincial pension legislation is too weak. Ontario employees in DB plans are better off than most – but arguably so only if your pension is under $1,500 monthly, since our province has a Pension Benefits Guarantee Fund up to that level. The PBGF, as regulated by the Financial Services Commission of Ontario (FSCO), covers certain DB pension plans – not DC plans or multi-employer plans (one covering skilled, labour union members), or public service plans – up to $1,500 monthly, an increase from $1,000 monthly in 2017.

To date, other than a few legislators, most are unable to put themselves in the shoes of an ex-employee or retiree who could lose 20% of her pension. Imagine if your MP or MPP was forced to take a 20% cut in pay. Or, if the public servants who support them were in that position. Suddenly laws might change!

What can you do? Educate yourself on what has been happening and how people have been affected. A great place to start is Francine Kopun’s January 20, 2018 excellent article in thestar.com, “Will 16,000 Sears Canada retirees see their pensions?” (https://www.thestar.com/business/2018/01/20/will-16000-sears-canada-retirees-see-their-pensions.html).

Support CARP and other organizations working to help members of DB pension plans. Speak out to your MP and MPP. In our next blog we’ll talk about why DB pension plan members need to pay more attention to their pension plans, and how a financial advisor can help.

 

 

This information has been prepared by Kirk Polson and Derek Polson who are Investment Advisors for HollisWealth® and does not necessarily reflect the opinion of HollisWealth. HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered. Polson Bourbonniere Derby Wealth Management is a personal trade name of Derek Polson and Paul Bourbonniere.