Thursday, December 3, 2009

Reforming pension regulation

A recent Globe and Mail article describes how Can West retirees and active workers are waiting for news on the amount of their benefits once their pension plan is liquidated. The latest financial results indicate a 22% reduction in benefits. The article includes comments from a 72 year old retiree who may have to sell his house.

The Can West story is not unique - the same thing is happening to retirees and active members across the country. People thought they had a safe and secure pension and have planned accordingly. Now their financial world has changed and they can't do anything about it.

All this begs the question: where were the regulators and what have they been doing to protect plan members? Judging from the Can West story, not much. I'm reminded of Captain Renault in Casablanca: "I am shocked, shocked, to find that gambling is going on in here!"

Pension regulation in Canada is based on a set of archaic laws and regulations that are doing nothing to help members of the Can West plans of this country. Some lip service is paid to the issue and a commission is established, but the landscape isn't changing. Harry Arthurs and the OECP produced the longest report, with the most recommendations, but, like the other commissions, completely failed to deal with the real issues facing pension plans and their members:
  • pension plans are financial instruments that people count upon for financial security after retirement. They are not a gift, a statement of intent or some sort of risk transference device.
  • trust laws do not provide an appropriate governance structure. They do not provide adequate protection of plan members.
  • regulators must be able to take into account the financial status of plan sponsors in formulating supplementary funding requirements. At present, they bend over backwards to accommodate sponsors, often in ways that reduce plan members' protections.
  • laws and regulations must be changed to deal with the excess surplus issue. To date, the courts have butchered any reasonable interpretation. This highlights the problem of using trust law as a basis for interpretations - laws that are not geared to handling pension risks, guarantees and their financing.
  • pension plans should be given priority in sponsor bankruptcies, the same as deferred wages.
  • pension plan regulation should be principle based, not rule based, i.e. regulated in the same way as banks and insurance companies. It's hard to imagine a bank or insurance company being regulated or governed as if it were a trust account - pension plans should be viewed the same way.
What is the likelihood of change? Hard to say. The Arthurs report seemed to say that if everyone just talked to each other all would be well. It did not deal with any of the fundamentals or even go so far as to say which of the current rules or regulations were no longer needed. The McGuinty Liberals recently defeated a Private Members Bill that would help protect the value of the Nortel Pensioners' share of their plan should it be wound up. Despite the amendment being very minor, and similar to what Quebec allows, it seems that Ontario wants to wait until it figures out what parts of the Arthurs' report it should implement (or, perhaps, the Bill was proposed by the PCs and the Liberals rejected it for that reason). Ah, the leadership of provincial governments.

I believe that any change will need to come from the federal government. OSFI has the competency, research capabilities and the experience with banks and insurance companies to make the needed changes. They could also set the framework for a desperately needed Canada-wide uniform approach.

1 comment:

  1. Pension regulation must favor the pensioners, not the bank. Sometimes they get a small amount of pension because of some irregularities in the bank.

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