Pension-plan shortfall alarm

An article from the Windsor Star on pension reform:
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By Ellen Van Wageningen

Fran McLean spent 47 years doing office work for the calcium-chloride processing plant in Amherstburg, Ontario, that was eventually owned by General Chemical Canada Ltd. When the company went bankrupt in 2005, McLean had been retired for seven years. A few years before the bankruptcy, it came to light that the company pension plan was underfunded.

Despite union and government involvement, the shortfall was never made up, says Debbie Fields, area director for the Canadian Auto Workers.

McLean saw her company pension cheques fall from $2448.90 a month to $1941.39 two years ago. Now she has a notice saying she will soon get only $1,000 a month, the amount covered by the Ontario Pension Benefits Guarantee Fund.

"It's not so easy to buy a new car now," she says matter-of-factly of the drastic drop in her retirement income. She put aside other savings while she was working, and she can still count on her Canada Pension Plan and Old Age Security cheques, she notes.

Defined-benefit pension plans, like the one McLean had with General Chemical, have been the gold standard for workers. But when those plans are underfunded and companies get into financial trouble, retirees aren't getting what they were supposedly guaranteed.

Troubled pension plans are just the tip of the iceberg, says a new report on the changing Canadian workplace released by TD Bank Financial Group.

As of 2008, less than 28 per cent of Canadian private-sector workers had employer-sponsored pension plans. Most of these are now defined-contribution plans, for which payouts are much more uncertain.

So the burden of saving for retirement is shifting to individuals, but many are not taking advantage of tax-sheltered plans, says the TD report authored by economists Don Drummond and Francis Fong.

Any pension reform should increase incentives to save for middle-income earners, who are most at risk of not being able to maintain their standard of living in-retirement, they conclude.

But York University finance professor Moshe Milevsky and co-author Alexandra Macqueen caution that even those who save 20 to 50 times what they will need annually in retirement still run the risk of running out of money before they die.

Guaranteed pensions are expensive, but they provide the certainty the elderly need, they write in the latest issue of the magazine Policy Options.

"Hope, expectations and estimates 'in all probability' aren't enough.”

The Canadian and Ontario governments have been studying the issue since before the recession but have yet to act. Proposals include increasing CPP contributions, expanding tax-sheltered savings plans and new rules to better monitor private pension plans.

The solution may come too late for McLean, but she and other local workers who are losing income because of failed pension plans are sounding the alarm.