For those who may be on company pensions | General financial discussion | Discussion forum

I'd rather press government to legislate (and enforce - that's the usually forgotten part) that a DB pension plan, at any particular moment, can never be less than 100% funded. The penalty: cessation of operations in Canada until 100% funding is reached. There are always risks in waiting until bankruptcy, even for those creditors first in line.

I wouldn't sign CARP's proposal. It has half-truths and is arrogant. It tramples on the rights of secured creditors in a way that even CRA can't. What makes someone think they are above even the CRA?

If I sell $100,000 of cubicles and office furniture to a company, let the company have the furniture now, and let them pay the $100,000 purchase price over five years, then I should be able to secure that $100,000 owed with a lien on the cubicle and furniture I sold them. Should the company go bankrupt during the five years, I can either take back the unpaid furniture or demand the bankruptcy trustee pay what I'm still owed.

What CARP proposes is that pensioners take precedent over such secured amounts owing. The bankruptcy trustee should be able to override the lien on the furniture, sell the furniture, and use the proceeds towards any pension deficits.

I don't think even the CRA has that kind of super priority claim over secured amounts owing!

Loonie said
… Seems to me it was never really a pension plan anyway, if they're using it for general revenues. It was more like a "lick and a promise". There should be a requirement to segregate the funds and manage them as a pension plan, seems to me, with a joint employer-employee board overseeing them.

That's one of the half-truths. According to the appointed Companies' Creditors Arrangement Act proceedings monitor, FTI Consulting, the pension money is and has been segregated. From their Pension Plan and Retiree Benefits FAQ:

1. What does the CCAA filing mean for the Company's registered pension plan and its assets?

● The assets of the Defined Benefit component of the Sears Registered Retirement Plan (SRRP) are held by CIBC Mellon - an independent trust company. Those assets are separate and apart from the Company’s assets. As such, they are not subject to claims by the Company’s creditors.

Loonie said
There's something else I don't understand. I know someone who worked in the Sears warehouse in Toronto for several years in the 1970s or thereabourts, and never received any kind of pension from them at all.  

Did every Sears Canada employee receive a DB pension?

You seem to be telling me two things, Norman. First, that the pensioners constitute unsecured creditors of Sears; and, second, that the Sears pension plan is segregated and registered as such. If the latter is true, then the former could not be an issue. If it's a segregated plan, separately managed, then why are we having this issue?

For the record, I do think that elderly people who are too old to work and who have had their necessary income snatched away are a higher priority than the ownership of used furniture. But that is not really the kind of either/or that we should be looking at, and it distorts the problem to put it in terms of people versus property. The guy who makes furniture can choose not to do business with a customer and assumes a known risk when doing so on time, and his risk can be spread among other customers. However, the low income person who works for Sears isn't going to have a lot of income streams to turn to if the pension he'd been promised evaporates.
Ultimately, the solution to the problems of income security are none of the above. A slew of independent pension plans is not efficient.

Joebart - yes, it's possible the person I was referring to did not, technically, work fulltime. She worked a lot of hours though, and there was no pension at all, DB or otherwise. It was manual work, and eventually she was physically unable to keep up. No golden handshake.

Whatever the problem is, the bonuses paid to managers should be the first source of funding.

Top It Up said
YET another cradle to grave thread, without claiming personal responsibility. it's no wonder socialist governments flourish in this country.  

+1

AltaRed said
DB plans in the private sector will disappear over time simply because of the impact they have on a company's balance sheet with respect to funding and the cruel reality that expectations employees have from such plans will not be met in many cases. It would be much better to simply work with DC Plans and/or Group RRSP contributions and revert to employees being responsible for their own retirement plans. Why should an employer be involved in a DB relationship anyway?
  

Why indeed. It has been ruinous for some industries that allowed themselves to get heavily unionized.

As was famously said about GM: "It seems to concentrate mainly on pensions and healthcare and for as long as I can remember has seen the car making side of the business as an expensive loss-making nuisance. "

Loonie said

A basic level of income security is an issue which must be addressed publicly, unless, of course, you are happy with a Dickensian society.  

Not really. A company decides how it wants to compensate to attract the talent (or grunts) it needs to carry on business. It can include a DB plan or a DC plan and pay correspondingly less in salary/hourly wages.... or it can simply pay more in direct compensation and forego benefits and job security.

Quite often contract "employees" are paid materially more on a per hour basis to compensate for that. I remember when I had a few independent contractors in our group. When I didn't need them, I shipped them off according to the contract. A few got angry about the dismissal. I asked them what part of being a well paid contractor...some 30+% more than an employee did they not understand?

Definitely see difference in political ideology here!

But as a statement of fact, people do compare and when they do comparatively worst than their counterpart in a wealthy society, they will complain and "strike back". That's why we have Trump (which bring us into a possible hot nuclear war), or Brexit (the most stupid thing British can do to their economy as their position of international financial center hindges on its relationship with the rest of Europe). The phenomenon of comparing is not common in poorer society as most people have no time to jealous .

Moving back to DB pension plan, I do agree it is a thing of the past as it create a lot of risk for private business as employer have to shoulder the risk of poor market performance. But I think we all agree that the childrean, the handicap, the sick, and the elderly need to be taken care of, hence, a more nuance regulation for current plan benefiter is a good idea. I also think it is a good idea for company that set up a pension plan to receive tax credit as it relief burden from the government in terms of reducing future GIS and OAS payout.

Moving to the idea where forcing all pension plan to be fully funded, I think this idea is too rigorous and will deter anyone from setting pension plan. Perpheps allow company to not make extra contribution when its situation is bad and only pay it back when its operation improve.

The proposal of super priority for pension plan will also deter company from setting pension plan, which will increase burden on government (increase GIS and OAS payout). Making the situation worst, it will also deter businesses overseas to do business with Canadian company because they know the bankrupt law is less protective of them.

A better solution is to make judges have the ability to "piece the cooperate veil" when owner of the bankrupted business act in bad faith (such as giving itself massive dividend before the business fail) and make them use their own money to beef up the underfund pension plan (In this case, the total amount of dividend they receive).

Added later:
1.In another words, government should encourage the establishment of pension plan, and 2. government should only step on to protect plan member when there are fraud and gross negligence.

Loonie said
You seem to be telling me two things, Norman. First, that the pensioners constitute unsecured creditors of Sears; and, second, that the Sears pension plan is segregated and registered as such. If the latter is true, then the former could not be an issue. If it's a segregated plan, separately managed, then why are we having this issue?

As AltaRed pointed out, all the contributions, employer and employee, are safe in the separate pension fund.

The defined contribution pension part is all up to date.

It is the defined benefits part needs to be topped up. I don't think Sears Canada raided the fund assets. Interest rates in recent years have been lower than expected. I think that the returns on fund's assets have been below the actuarial estimates. That is not unique to Sears Canada's pension fund.

Sears Canada had been making extra contributions regularly to eventually close the shortfall. The December 2015 valuation showed there would eventually be a $28.9 million surplus with the continuing extra contributions! Without them, there would be a $266.8 million shortfall.

That is a 19% shortfall in the funding of the defined benefits pensions as of December 2015. So, the defined benefits pensions were 81% funded.

Loonie said
For the record, I do think that elderly people who are too old to work and who have had their necessary income snatched away are a higher priority than the ownership of used furniture. But that is not really the kind of either/or that we should be looking at, and it distorts the problem to put it in terms of people versus property.…

I disagree. Secured lending allows business to borrow without the lender having to get involved in things like employer-employee relations. Repay the loan or return the collateral.

As well, when they retired, the pensioners could have commuted the value of their pensions out to their own personal life annuity. Monthly payout could be lower. But, that's the price to be paid for insulating one's pension from one's employer.

In reality, no Sears Canada pensioner will have his/her pension snatched away. The question is whether the defined benefits pensioners will be receiving closer to 81% or closer to 100% of their pension.

Lots of creditors would be delighted to get 81% to 100% back in the event of bankruptcy.