Pensions in Canada – A Sorry Tale

I have been involved as an actuarial assistant, actuary and pension consultant in Scotland and Canada since 1959. In this period I have observed the gradual deterioration in both the use of and problems relating to Defined Benefit Pension Plans. There are many villains in this story from Employers, Unions, Governments, Judges, Actuaries, Accountants, Federal and Provincial Pension Regulators, Pension Benefit Guarantee Funds and even Ben Bernanke. Indeed virtually all parties involved with Pension Plans have, in one way, shape or form, been a party to the present mess which constitutes Pension Plans in Canada and also applies in several other countries.

As far as this article and subsequent more detailed ones are concerned, the term “Pension Plans” will refer to Defined Benefit Pension Plans as against Defined Contribution Pension Plans which are essentially Group RRSP’s with a smear of lipstick.

So what went wrong? The answer, unfortunately, is virtually everything. There was certainly, for the most part, no malice intended nor was there a concerted effort by all parties at one specific point in time to rain hell and damnation on Pension Plans. Rather it was a series of totally unconnected acts by different groups to gradually whittle away one of the great financial concepts of all time, the Defined Benefit Pension Plan.

A Defined Benefit Pension Plan is a legal entity, established by one or more employers, in order to provide pension benefits to employees to provide them with an adequate retirement lifestyle. Such Plans generally supplement the subsistence pensions and means tested benefits which are provided by the Federal Government. Many Canadians are able to maintain a good standard of living in their retirement years as a result of membership in such Pension Plans.

Today, as a result of the actions of various Plan Sponsors, Advisors, Court Decisions, Accounting changes, Pension Benefit Guarantee Funds, which penalize good employers to the detriment of bad ones, the avarice of Unions, Court decisions, mistimed asset/liability matching by Plan Sponsors with the assistance of their Consultants, provincial pension regulators, Revenue Canada and ultra low Government set interest rates, the death knell of Pension Plans is nigh.

Not all is irrevocably lost. Whilst it may be difficult, if not impossible, to roll back the clock and correct many, if not most of the problems afflicting Pension Plans, there are at least partial solutions. Target Pension Plans which are a form of Benefit Plans but do not guarantee benefit levels may prove to be the best of several compromise solutions. They retain the basic elements of Pension Plans without placing the Plan Sponsor in a position of having to resort to writing blank cheques. These Plans are preferably funded 50/50 between Plan Sponsor and Plan Members and provide a King Canute solution to rolling back the present high tides which will ultimately bankrupt many Plan
Sponsors, Governments and taxpayers.

Gordon B. Lang, FCIA
President & CEO
Gordon B. Lang & Associates Inc.