The global recession is forcing Ottawa to rewrite pension plan rules across the country.
Today, many employers haven’t got enough money to pay for workers’ retirement.
“(The recession) has brought it to the top of mind,” said Ted Menzies, parliamentary secretary to the finance minister. “There’s been other reviews, but perhaps not the urgency that there is now.”
“Some of these (pension funds) are in serious solvency situations, and the last thing we want to see is any of these companies fail because of these solvency issues,” said Menzies, who held his fifth public consultation on federally regulated pension funds in Whitehorse on Wednesday.
“That’s the urgency because if they go into receivership—and you’ve heard the story of the Royal Oak mine and now the concerns with General Motors—that’s what we’re trying to pre-empt.”
In the High Country Inn ballroom, surrounded by a panel of federal officials, Menzies took notes as local employers and labour reps described the precarious position of some Yukon pension funds.
The ghost of Yellowknife’s Royal Oak mine, also known as Giant Mine, still haunts pension fund circles.
Washington State-based Royal Oak Mines Inc. went bankrupt in 1999, and the handling of the pension fund is now a textbook case about how not to do it.
“One of the first decisions the receiver made was to cut pensions by 50 per cent,” said Jean-Francois Des Lauriers, the Public Service Alliance of Canada Northern branch vice-president, who represents 1,200 workers in three territories.
Miners had worked for 30 or 40 years for the Giant Mine before it was bought by Royal Oak, said Des Lauriers.
“They worked in the recesses of the Earth, in water up to their knees with jack leg drills,” he said. “At the end of their tenure, they ended up severely disabled.”
Miners suffered from whitened finger disease, loss of feeling in their arms, hearing loss and respiratory problems, he said. Some of them were in their 60s and 70s when they found out half of their pensions were gone.
“Yellowknife is a small community,” said Des Lauriers. “And you see these people, who spent their lives making others fabulously wealthy, mopping floors at Canadian Tire and at McDonald’s.”
It wasn’t until 2005 that Ottawa sorted out the mess.
“We want to make sure that situation never happens again,” said Des Lauriers.
Only seven per cent of all private pensions—representing 12 per cent of pension assets, nationally—are regulated by Ottawa. The rest are under provincial jurisdiction.
“The general rule of thumb is that it’s the pension plans that work across borders,” said Menzies. “So it’s the transportation industry, the telecommunications industry—like Air Canada, CN, CP—those are the ones that move across the country.”
Ottawa regulates more than 750 pension plans, he said.
The government has already laid the foundation for the next generation of pension rules, such as extending the amount of time a company has to refill pension coffers when hard times hit.
The Yukon has a fair share of its pensions regulated by Ottawa. That’s because there are no local pension laws.
Both Whitehorse General Hospital and Yukon College have their pension plans regulated by Ottawa’s Pension Benefits Standards Act, which forces these publicly-owned institutions to manage their pensions like private companies.
The hospital wants that changed, arguing the rules for private enterprises are too expensive. Under those existing rules, the institution must ensure it has enough money to cover its employees’ pensions as if it could go bankrupt in an instant.
“It’s difficult because, at any time, assets can increase or decrease,” said Kenneth Burns, a lawyer from Vancouver-based Lawson Lundell LLP, which represents the hospital.
“If you’re in a deficit position then you have to make special funding commitments through extra funds in the pension plan,” he said.
But a hospital won’t go bankrupt because the government has to bail them out, so the rules force it to mitigate a risk that doesn’t exist.
“Public-sector employers aren’t going bankrupt tomorrow,” said Burns.
In fact, last year both the hospital and Yukon College signed special agreements with the Yukon government to help them pay for a massive equity shortfall in their pension funds.
The hospital wants rules loosened so it doesn’t have to keep the pension books as solvent.
Generally, the financial crisis has also spurred some out-of-the-box thinking now that pensions are becoming harder for companies to finance.
“We’ve heard from many people that maybe we should be harmonizing pensions all across the country,” said Menzies. “If we’re talking about mobility, then we’ve got to have the same sort of regulations in British Columbia as we have in Nova Scotia.”
Ottawa has been considering modernizing these regulations for years, but the recession has made it a priority.
Existing regulations were drafted for labour conditions in the 1960s, said Menzies.
Back then, nobody could predict how expensive running a company could be.
“Who knew where wages were going to be?” he said. “Some of these plans were written 40 or 50 years ago. No one guessed where the cost of wages was going to be, no one guessed where the cost of living was going to be, no one guessed that we were going to have multiple recessions in the meantime.”
Also, the labour culture has changed drastically in 50 years.
People are less likely to stick to one job their whole life, and that changes the way pensions are designed.
The old model—a defined benefit plan—is meant for one life-long employer.
“Virtually no one is starting a new plan as a defined benefit plan,” said Menzies. “They were the vehicle of choice for retirement for many years, but no one could see far enough ahead at the potential future commitments would likely cost.”
These days, defined contribution plans are in.
“You’re seeing the increase in defined contributions that are mobile” said Menzies. “You can take it and move it from one employer to another, which is what you’re seeing in Canada now, not parking themselves in one job for 40 years.”
Part of Menzies’ job—he still has to do public consultations in Edmonton and Winnipeg—is simply to figure out the best model for pension plans today.
“How do we make sure we prepare people for their retirement? Is it defined benefits? Is is defined contributions? Is it a hybrid?” he said.
Ottawa will mull over the information it has gathered on pensions plans across the country later this month, and will probably draft new legislation on pension funds in late spring.
Contact James Munson at firstname.lastname@example.org.