|
Pensions at the Crossroads
March 10, 2009
Peter Gehl, Regina
The current economic and financial crisis gripping the world is challenging the public and labour to address the question, "How do we go forward?" For most, the prospects for the future are swiftly deteriorating. This is particularly true for seniors and retired workers who depend extensively on public and workplace pensions to sustain them.
The Pensions at the Crossroads Conference held February 4 – 6, 2009 in Regina, Saskatchewan and sponsored by the Saskatchewan Federation of Labour (SFL) provided a timely and revealing glimpse into the present situation and attitudes of labour’s leadership and rank-and-file.
SFL president Larry Hubich opened the conference by saying that the pensions of union members and working Canadians are being adversely affected by a deeply-flawed and unregulated financial system based mainly in the United States. Saskatchewan Superintendent of Pensions David Wild reinforced Mr. Hubich’s view by saying that 90% of employer-sponsored defined-benefit (DB) pension plans* in the province are "underwater" and that change to the pension system in Canada was needed and presently underway. Prominent labour lawyer and member of the recently completed Ontario Expert Commission on Pensions Murray Gold indicated that registered pension plans, Canada’s "third pillar", was broken. All three "pillars" (Old Age Security & Guaranteed Income Supplement, Canada/Quebec Pension Plan and registered pension plans) are needed to provide an adequate income in retirement. Calgary consultant and actuary Pat Johnson said that the overall situation facing the pension industry is one of turmoil and uncertainty; and advised the labour movement to prioritize actions to prepare for what lies ahead.
Their message went deeper. Unions are the back-bone of registered pensions. The declining rate of unionization in the workforce has meant that the percentage of paid workers covered by a registered pension plan has decreased from 43% in 1993 to 38% in 2006. The quality of existing registered pensions is being eroded by the termination or conversion of DB plans to defined-contribution (DC) plans* or group RRSPs. DB plans are predicable (people can plan retirement), secure (by law funds are to have sufficient assets with the employer contributing to deficits) and efficient (monies are only to pay pension retirement incomes and are administered efficiently). By comparison, DC plans are unpredictable (difficulty in planning for retirement), insecure (loses not compensated by additional contributions from the employer) and inefficient (small plans generally reliant on expensive mutual funds and conversion to an annuity carries interest rate risk). In the last five years, fifty new DC plans have been registered in Saskatchewan. DB plans are stagnant and survive only in unionized workplaces because of collective bargaining. After an extended and often bitter struggle with their employer Saskatchewan Wheat Pool-Viterra, the Grain Services Union was able in 2007 to secure funding for their DB plan to cover existing employees and retirees. A new DC plan now covers recent hires.
Three expert commissions on pension reform (Ontario, Nova Scotia and Alberta/British Columbia) have just completed their work and along with the proposed Canada Supplementary Plan by Keith Ambachtsheer of the C.D. Howe Institute are hoping to set the upcoming "pension agenda". The Saskatchewan government is currently working on a "medium-term review" of pensions which is due shortly in 2009-2010. A common theme of these exercises is to reduce employer cost and risk. In the short-term, solvency and funding requirements e.g., commuted value calculations, are being relaxed and amortization periods extended. In the longer-term, "going-concern" principles will replace current rules-based regulation. Occupational pension plans will be overseen by an advocate or champion rather than the superintendent of pensions whose decisions will be subject to the "check and balance" of an appointed tribunal. Tackling the so-called "asymmetry of risk", employers will have access to DB plan surpluses and employees will share in DB plan deficiencies with increased contributions, decreased benefits or both. Plan trustees will assume greater fiduciary and legal liability. Joint employer-employee trusteeship of pension plans will be encouraged. DB plans with guaranteed benefits will be replaced by "target" benefit plans in which assets need not cover liabilities. Plan assets will be shown at cost rather than following "mark-to-market" accounting. Environmental, social and governance issues will be clearly subordinated to financial risk assessment and returns on investment. Employers have their agenda. Does labour?
Joel Harden, Researcher, Social & Economic Policy Department, Canadian Labour Congress (CLC) described the current economic and financial crisis and the CLC’s campaign Pensions – An Action Plan for Labour. Following the CLC’s 2007 Pensions Conference, the current action plan proposes: pension protection, a dramatic increase to public pensions and a curb on financial speculation. The Canadian government should provide pension insurance similar to the United States and change federal bankruptcy law to secure pension plan funding and solvency payments ahead of secured creditors as opposed to the non-secured status they now hold. The Canada Pension Plan should be doubled. A "Tobin tax" equalling 0.1% of financial transactions should be implemented to create a fund for social investment.
While helpful in describing the current crisis, Mr. Harden’s presentation – and the conference generally – was short on implementation of an action plan which could unify and motivate labour to lead a public and political struggle to counter the burgeoning employer-government "pension agenda." No indication was given as to how participants, local unions and labour councils could take part or support the CLC’s Pensions – An Action Plan for Labour. The message seemed to be, "Thanks for coming. The situation’s really bad. It’s been a good two and one-half days. Go home and apply what you’ve learned. Don’t forget you bagged lunch. Good luck." To be fair, many participants and their locals are joint trustees on pension boards and have specific interests. Responsible investing involving environmental, social and governance (ESG) issues and personal retirement planning are valid points of discussion. Still, the "if-we-could-just-get-the-$25-trillion-in-workers’-global-pension-funds-working-in-unison-things-would-be-different" sentiment seemed lacking and inappropriate given present circumstances.
Whether prescribed to or not, the words of the Global Europe Anticipation Bulletin [see Global Research website] should at least be acknowledged since the bulletin forecast in 2006 the current economic and financial crisis. In March 2008, the bulletin stated that "with dozens of millions of newly retired ‘baby-boomers’ beginning to call on funds in pension plans, the shortfall in pension funds will be the dominant aspect of the global financial crisis… It will provoke a social crisis affecting pensions. The most affected countries will be the US, Japan, UK, Canada, Sweden, Denmark and Netherlands." In December 2008, the bulletin said there exists "the risk of the sudden collapse of all capital-based pensions" and in 2009 "pension fund managers, pensioners and governments will become simultaneously aware of the fact that the crisis is there to last, that it coincides with the ‘baby-boomer’ generation’s age of retirement, and that the markets will not resume their 2007 levels until many long years. Chaos will flood this sector and governments will reach the moment when they will be compelled to nationalize all these funds. And, Argentina who took this decision a few months ago already will appear a pioneer."
The capitalists and their governments and experts acknowledge the devastating effect the current systemic crisis is having on pensions and the savings of retirees. Still, the eternal and all-mighty quest to preserve or enhance wealth takes priority. Right-wing social democracy laments, is immobile and waits for better times. It’s up to labour to effectively tackle the pension issue, take the lead and press for a full, country-wide pubic pension which is available to all Canadians – similar to medicare. |