21 March 2009
Unions, Retirees Urge Ottawa to Safeguard Pension Funding Rules
With pensions and the survival of major companies both
hanging in the balance, union leaders, frightened retirees, and their advocates are pleading with Ottawa not to relax permanently its
pension security rules.
The request comes after a group of major employers asked Ottawa to double the amount of time allowed to top up underfunded pension
plans to 10 years and to use a method of calculation that would reduce the size of reported deficits.
"You will ensure (pensions) are never fully funded," Air Canada pilot and association chair Paul Strachan warned yesterday
at a public consultation session with sparse representation from employers.
Several speakers also took jabs at executives' ethics, multi-million-dollar bonuses and the decisions they took in good
times that favoured shareholders and themselves over employees' retirement income rights.
Those rights are looking shaky and employees are fearful knowing their pension claims would fall to the back of the line of creditors
in cases of business bankruptcy.
"It is not acceptable for banks to get greater protection than workers in a bankruptcy," argued Sym Gill of the Canadian
Auto Workers union, which represents employees of airlines and other federally regulated pension sponsors.
Gill and several other speakers called for changes to bankruptcy law, a national pension benefits guarantee fund such as exists in the
United States and an expansion of the Canada Pension Plan to provide greater security for more workers.
A pension actuary and a representative of pension sponsors called for a balance that would help companies stay in business, and keep
sponsoring pensions.
But Strachan called it opportunistic for the chief financial officer at Air Canada and six other major employers regulated by Ottawa
to capitalize on a "short-term situation" by requesting permanent relief from pension funding.
Strachan said the current recession and recent heavy investment losses may justify allowing companies extra time to top up their
pension funds. But he said there should be restrictions and consultation with employees, just as Ottawa proposed last year for
granting temporary relief.
The so-called group of seven companies that made a joint submission to Ottawa earlier in the week wants to take 10 years
to close a funding gap, without consulting employees or retirees.
They also want a formula for calculating the size of the funding shortfall that would be far laxer in the current economic climate.
Strachan and Leslie Dias of the CAW said Air Canada's pension plans would now be short about $3.2 billion, or about 30 percent, if it
calculated the total value of pension promises using the low interest rate paid on federal government bonds.
But Air Canada's shortfall would fall to zero if it got its wish to calculate what it owes using the interest yield paid on corporate
bonds that has moved higher due to uncertainty about the chances of being repaid.
Companies are permitted to use these higher interest rates when reporting the state of their pension plans in their financial
statements to shareholders and bondholders, but not when reporting their solvency funding to pension regulators.
An increase in corporate bond yields over the past year allowed Hydro One, the government-owned distributor of
electricity in Ontario, to report a $1 billion or 20 percent decline in the size of its pension obligations last year.
The group of seven federal companies that are seeking a similar calculation for reporting solvency funding to pension regulators
include Air Canada, Bell Canada, Canada Post, Canadian National Railway, Canadian Pacific Railway, MTS Allstream, and NAV Canada.
They account for the bulk of pension assets regulated by Ottawa. Most pension assets are overseen by the provinces, but other
companies could ask for similar treatment if Ottawa agreed to the request.
The seven employers say their plans are 83 percent funded on average.
Yet, their total contributions would jump from an average of $1.2 billion during the past four years to $3.5 billion if they had to
fund their deficits over five years, and $2.4 billion over 10 years.
Ted Menzies, the parliamentary secretary to the minister of finance who is heading up the pension consultations, promised legislative
changes by the end of the year. He assured speakers he was there to listen to everyone, and that the government's goal is to improve
the framework for pensions.
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