Canada’s largest publicly traded companies could have eliminated their defined benefit pension deficits five times over with the value of their shareholder payouts in 2017 alone, according to a new report by the Canadian Centre for Policy Alternatives.
“Despite the decline in DB plans, a third of Canada’s biggest companies actually maintain a DB plan of some kind,” says David Macdonald, a senior economist at the CCPA. “However, over the period of the study, from 2011 to 2017, we’ve seen a fairly large increase in the amount that these companies pay out to shareholders. But at the same time, we’ve seen them maintain pension deficits that they could readily pay off.”
In 2011, S&P/TSX companies with DB pensions paid twice as much to shareholders as it would have cost to eliminate their pension deficits. By 2017, payouts to shareholders reached $66 billion, more than five times the value of these companies’ pension deficits, at $12 billion.
“So they pay off, in 2017, five times more to shareholders, and then the total pension deficit, which isn’t an ongoing deficit . . . will be in essence a one-time payment,” says Macdonald.
The report found the majority of the 10 companies with the largest pension deficits pay out more annually to shareholders than the value of a one-time payment to eliminate their pension liability. However, it noted that pension deficits have shrunk since 2011.
“Broadly speaking, the pension funds are better funded today than they were in 2011,” says Macdonald. “Despite that, though, about two-thirds of companies with these DB plans appear to continuously keep them slightly underfunded instead of fully funding them, despite the fact that they appear to have the resources to do so given what they’re paying out to shareholders.”
Canada’s current pension legislation leaves it to companies to decide whether to eliminate their pension deficit, as long as they meet minimum funding obligations, the report concluded. “It’s time for more co-ordinated pension regulation that considers firms’ financial strength rather than simply focusing on the financial status of the pension plan.”