Simon Coakeley, Chief Executive Officer
Bill C-27…what’s that?
Bill C-27 is a piece of legislation being considered by Ottawa. Officially it’s called An Act to amend the Pension Benefits Standards Act, 1985, but it might better be called An Act to steal retirees’ pensions and make them poorer in retirement.
What makes you say that?
This gets a bit complicated, so bear with me…
The federal government has a law called the Pension Benefit Standards Act, 1985. It tells companies what they have to do when they set up a pension plans. At the moment, there are two basic types of pension plans: defined benefit plans or defined contribution plans.
Defined benefit plans guarantee you a pension when you retire based on the number of years you have worked and your salary, usually something like this:
- 2% per year of service (up to a maximum of 35 years)
- times the average of your (best or last) 5 years’ salary.
There has to be enough money in the plan so that when you retire you know what you will receive for the rest of your life and you can plan your retirement.
Defined contribution plans don’t guarantee you anything. The money you and your employer contribute is invested while you are working and you receive a lump sum when you retire. You can use the lump sum to fund an RRSP or an annuity from an insurance company. But the size of the lump sum depends on how well the contributions have been invested while you worked, and the amount of retirement income you will receive depends on how well you invest your lump sum when you retire.
What does this have to do with C-27?
Almost everyone agrees that defined benefit plans are much better than defined contribution plans because you are guaranteed a regular income throughout your retirement. Unfortunately, not all employees are covered by a defined benefit plan. So, the federal government thinks that a target benefit plan is another alternative that should be available to companies and their employees.
What is a target benefit plan?
A target benefit plan is a bit like a defined benefit plan because it calculates your pension by multiplying your years of service by your average salary but there is no guarantee that there will be enough money in the fund to pay you the full amount. If all goes well and the money is well invested and well managed, you’ll be ok; if things don’t go so well…you will still get something, but it may be less than you planned for and need in retirement.
A target benefit plan is better than a defined contribution plan and it is cheaper to establish than a defined benefit plan and some employers who can’t afford to create a defined benefit plan could afford to create a target benefit plan, so target benefit plans aren’t inherently bad.
C-27 will allow federally regulated industries to create target benefit plans instead of, or in addition to, defined contribution plans and defined benefit plans.
That’s a good thing isn’t it?
Well, it’s not a bad thing. It’s hard to argue against choice and flexibility, because one size almost never fits all. The problem isn’t that the federal government is going to allow more choice, the problem is that they are going to allow the rules of the game to be changed in the middle of the game, and that will make retirees poorer.
C-27 will allow a company to convert an existing defined contribution plan or an existing defined benefit plan to a target benefit plan. Going from bad to better is good; going from better to worse is bad!
But what happens to the guarantee in a defined benefit plan?
That’s the thing: if a company can convert its defined benefit plan to a target benefit plan, then there will no more guarantee.
So who decides?
Good question, and this is where things get a bit tricky. If there is a union in the workplace, the union would have to agree to the change on behalf of employees. If there isn’t a union, then the individual plan members would have to agree. It appears that people who are currently receiving a pension would have to agree individually.
Obtaining consent isn’t bad, or is it?
Of course obtaining consent isn’t bad, and Bill C-27 does talk about obtaining ‘informed consent’. But there are more than a more than a few problems here.
Unions will be put in a very difficult situation, possibly forcing them to trade-off the interests of newer members against the interests of older members and retirees. Even where individual retirees have to give consent there are problems.
Pensions are very complicated things. They involve investing money today to ensure payouts tomorrow. Nowadays it’s not unusual for people to receive pensions for as long as they worked, so there are many tomorrows to think about. Do you know what the stock market will be doing in 5 years? Do you know what interest rates will be in 10 years? How long do you expect to live? Will your spouse survive you?
Let’s say you are 60 and receive $2500 per month. If I offer you $10,000 today for you to exchange your defined pension plan for a target pension plan, is that worth the risk? What if I offer you $25,000? And this is the problem: unless you are an actuary, you don’t know, so how can you give ‘informed consent’?
C-27 isn’t all bad is it?
No. Giving companies and employees the flexibility to design pension plans that are best for them is good. There are legitimate business reasons why a company may not be able to establish a defined benefit plan, and there are legitimate reasons why employees might be willing to accept a bit of risk in a target benefit plan.
But you don’t change the rules of the game once the game has started, and that is what is bad about C-27.
What is being done about C-27?
Federal retirees, other members of the Canadian Coalition for Retirement Security and other organizations have been actively lobbying MPs and Senators, getting the message out that Bill C-27 sucks!
And how is that working for you?
So far, so good, but there’s still work to do. Since C-27 was introduced in Parliament back in October 2016, it hasn’t moved from First Reading (usually a bill goes from First Reading to Second Reading fairly quickly), so this is good. It suggests that maybe the government has been getting more push-back than it expected. It also suggests that maybe the government might be rethinking things.
So why should I get involved?
Because until we’ve won the fight, we haven’t won the fight! If the government thinks that opposition to C-27 is fading, they will push ahead in the fall. If the government realizes that opposition to C-27 is still strong, they will have to rethink their strategy. Governments don’t like strong public opposition, because they see that as lost votes. The next election is in October 2019, so the Liberals are starting to think about how solid their support is! Now is the time to help us win this one!
What can I do?
I was hoping you’d ask that! Lots of things:
- Contact your Member of Parliament and tell him or her that you don’t like C-27 changing the rules of the game. If you don’t know who your MP is, our handy MP Finder Tool can tell you. It will also help you send an email to your MP!
- Download our handy tools to help you speak to your MP.
- Get social and tell your friends on Facebook and Twitter so they can help us too.
- Sign-up to our informative monthly newsletter.
And last, and of course not least, join Federal Retirees so we can keep on campaigning on your behalf.
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