Last month we talked about the precarious position that former employees of Sears Canada are in relative to their pensions — a scenario that none of us would wish upon even our worst enemies. The reality is that there are other Defined Benefit pension plans in Canada in deficit positions. And, this could get worse as the population ages. More so if interest rates stay within an historically low range in the years ahead.
So, what should you as an employee be doing? First, learn as much about your employer pension plan as possible. If it’s a private Defined Benefit plan — as opposed to a plan for government employees — where you’re promised a specific monthly income on retirement, determine if it’s fully funded or whether your employer is playing catch up in the years ahead. Speak to the pension benefits specialist in your HR department. As an employee, you have the right to information.
We can’t emphasize enough the importance of paying attention to your pension benefits and your employer plan itself during your entire working career. Picture yourself as a former Sears or Nortel employee or retiree who is forced to take a cut in income at a time in your life when you can least afford it.
Next, consider getting an independent opinion. Pension plans can be confusing. A Certified Financial Planner® professional who specializes in “retirement income planning” — emphasis on the word “income”, not just any CFP® — may be able to help. Alternatively, for a reasonable fee, you and/or a few of your fellow employees may be able to hire an independent actuary who can interpret the plan for you. Be prepared to provide as much information as you can, including your latest statement of benefits and a booklet describing the plan itself.
Depending on which province you reside in, access to your benefits — or the “commuted value” (essentially the cash value) of those benefits — may be limited or simply not allowed by law due to pension “vesting” rules, rules designed to keep you from spending your retirement nest egg before you retire. Changing employers may give you some flexibility, but with that goes a whole list of other negatives
Last, but most difficult, is assessing the “state of the nation” — the economic viability of your employer. The toughest of all for an employee to analyze. What are your employer’s prospects for the future? Some of you will appreciate that you work in a highly cyclical industry. Others will appreciate that rapid changes in technology and how your customers want delivery of your product, are leaving your employer behind. Frequent layoffs, increasing shut downs, early retirement offers, and/or the loss of significant market share or major customers, may point to a declining company or industry. Do you work for a Canadian subsidiary of an American company? How will potential changes in NAFTA affect your company? What about the US administration keeping business in America?
Most importantly, don’t rush into a decision about your employer’s pension plan. In the ‘80s that was easy. Given an option in that era to manage your pension money when interest rates where 7-10% often was a good enough reason to opt out if you could. Today, the promise that allows you to ultimately collect a guaranteed pension under a Defined Benefit Plan may still be of great benefit — but only IF your employer and pension plan survive in the long term.
Never assume that your employer will always act in your best interests. Gone are the days when most employers viewed their employees as family. You may be an asset to your company, but you’re also a future liability if you have a Defined Benefit pension plan. Get competent advice. Look at your options. And, choose carefully.
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.