Two organizations representing Canadian pensioners are asking the British Columbia government to reject the recommendations of a recent report by the Ministry of Finance that suggests lowering required pension solvency funding from 100 per cent to 85 per cent.
“We actually disagreed with the very objective of the report,” says Marissa Lennox, spokesperson for CARP, formerly the Canadian Association of Retired Persons. “We felt it was flawed.”
In October 2018, the provincial government launched a review, which was aimed at reforming the province’s solvency funding rules in an effort to encourage private sector companies to continue to offer defined benefit pension plans. In suggesting the funding rules should be more relaxed, the report is potentially endangering the heath of current plans, says Lennox.
“CARP’s position has always been, rather than watering down the rules in the hope of reversing the decline of these pension plans, why don’t we just protect and support the pension plans that are already in existence? Basically, the government talks about how defined benefit pension plans are an important part of the retirement system, and we agree. We fundamentally agree on that point, provided the funding is actually there when the individuals need it the most. And the recommendations that came out of this report would do just the opposite.”
As part of the consultation process for the review, CARP made a number of other recommendations, including that the provincial government create a pension benefit guarantee fund; that pensions are fully funded before a company can be sold; that universal pension relief is abolished; and that the government provides an option for orphaned pension plans of insolvent companies so they can continue to operate.
Notably, none of CARP’s recommendations made it into the report, says Lennox.
Regarding the solvency rules, the report said the current requirements prioritize the “very small risk” of a private sector employer’s insolvency, over the overall sustainability of DB plans as an option. “This prioritization has led to a reduction in pension coverage as many plans have wound up due to the contribution volatility and high costs associated with solvency funding requirements,” it read.
“We have to remember, all of this is happening in the context of Sears,” says Lennox. “In a month’s time, we’re going to learn the fate of Sears’ pensioners and it’s looking like their pensions will be slashed somewhere in range of 30 per cent, which is really significant.”
The Canadian Federation of Pensioners is also calling on the provincial government to reject the pension solvency report.
“The proposed changes do nothing to protect B.C.’s 170,000 defined benefit pension beneficiaries and their families,” said Michael Powell, president of the Canadian Federation of Pensioners, in a press release. “Employees pay into their pensions and expect to receive the money when they retire. But as the bankruptcies of Sears and Nortel have shown, companies abandon pensioners because the law allows them to do so.”
The organization noted the report fails to recommend tangible solutions to protect pensioners when companies with under-funded pensions file for bankruptcy. “It’s time for the B.C. government to put pensioners first,” said Powell.