According to a 2006 survey of CFOs by Watson Wyatt and the Conference Board of Canada, 41% had recently made changes to their DB plan or intended to do so in the following year. Many of those are reducing benefits or converting to DC for new hires and future service for current employees. Most recently, Sears Canada said it plans to freeze contributions to its DB plan and introduce a DC component in 2008. Our Top 100 Pension Funds Report examines this trend and the implications of taking this step.
In the meantime, cost-conscious employers are increasingly reducing or eliminating post-retirement healthcare benefits for their employees. Bell Canada, for instance, recently announced plans to eliminate supplemental health benefits for future retirees starting in 2012. Our feature article looks at the decline of post-retirement benefits, and examines some of the options—and obstacles—for pre-funding these benefits.
And the problem isn’t going away anytime soon. At least not if the Accounting Standards Board has anything to do with it. Earlier this year, it issued proposed amendments to the Canadian Institute of Chartered Accountants Handbook, Section 3461. The amendments will require employers to recognize the funded status of their pension, post-retirement and post-employment benefit plans on their balance sheets, potentially reducing shareholder equity. For some employers, this may be the factor that ultimately drives them to abandon their DB plans and post-retirement health benefits.
If that happens, we can expect to see more and more Canadian workers retire with neither health benefits coverage, nor a guaranteed income from their employee pension plan. Add this to the fact that we’re living longer and the forecast calls for stormy weather indeed.
Policy-makers need to pay heed to what is shaping up to be a looming social crisis. They need to find ways to encourage employers to provide their employees with an adequate source of income and health coverage in retirement—through traditional or alternative means. If not, employers will continue to walk away from DB plans and post-retirement benefits, and we can expect to see some unsettled conditions in the years ahead.
Better batten down the hatches.
Don Bisch is the editor of BENEFITS CANADA. firstname.lastname@example.org
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