Bill C-27 pension reform: an unprecedented attack on all
Photo by Art Babych/Shutterstock.com
On October 19, 2016, federal Finance Minister Bill Morneau tabled Bill C-27, taking aim at the Pensions Benefits Standards Act governing pension plans in workplaces under federal jurisdiction: crown corporations, air and rail transportation, telecommunications and banks.
The proposed new legislation allows employers under federal jurisdiction to convert defined-benefit pension plans to target-benefit plans, which essentially means dumping safe pension plans for risky ones.
Still worse, the bill makes it possible to convert pension plans on a retroactive basis. The corrosive effect that this is likely to have on the security of retirement income will negate any real savings for society as a whole.
A study conducted by the Boston Consulting Group found that defined-benefit pension plans are good for the economy generally because benefits paid out are returned to the economy in the form of spending and tax revenues, generating growth and jobs. Retirees with defined-benefit pension plans are also less likely to have to count on the government’s Guaranteed Income Supplement. Moreover, income security in retirement is associated with better health outcomes, which reduces pressure on the healthcare system.
It is businesses which will enjoy any savings expected from the scrapping of defined-benefit plans. Many employers have already gotten rid of their defined-benefit plans and that trend is continuing, even though these plans perform better in the short term and have better long-term prospects. Aon-Hewitt showed that the median solvency ratio of defined-benefit plans had increased, rising from 86.1 per cent in January 2016 to 94.9 per cent in January 2017. In spite of this, the proportion of fully funded plans rose from 10.7 per cent to 35.2 per cent during the same period.
The former Conservative government had hoped to introduce a “voluntary target-benefit option” two years earlier, in 2014, but dropped the idea. Trudeau, a member of the opposition at the time, maintained that it was unacceptable to deprive seniors of benefits that they had earned and accumulated over the years. However, Bill C-27 will do exactly that. Moreover, if the bill becomes law, the provinces could be tempted to pass similar legislation, thus expanding the scope of the attack.
In an interview on RDI, Michel Lizée, a wellknown CUPE economist and activist in Montréal, now retired, explained that target-benefit pension plans transfer all the risk to workers. If, for example, a defined-benefit plan has a 10-percent shortfall, the employer is responsible, but with target-benefits plans, the benefits of active and retired plan members are reduced by 10 per cent. Employers are also seeking to eliminate the accounting risk, whereby the pension plan deficit is added to the company’s liabilities. It is only a hypothetical deficit operating in the long term, whereas for companies everything depends on the short term and they are worried about lower credit ratings.
Changing a contract on a retroactive basis represents an unprecedented attack. People who worked their whole lives and often agreed to lower wages for the sake of a defined-benefit pension plan will now see employers reneging on their commitments and denying workers and pensioners a portion of the benefits due them. Employers will see their debt vanish while guarantees to retired employees are wiped out.
This Liberal attack on workers is all the more odious insofar as the target-benefit plan was heavily promoted by the Morneau Sheppell human resources management company in which Finance Minister Bill Morneau holds shares. The firm manages pension funds from which Morneau has received monthly dividends ever since he took up his position in 2015.
It goes hand in hand with the assault on crown corporations and companies in the federal sector. The sticking point in the last round of negotiations with the Canadian Union of Postal Workers was precisely the pension plan and, with the next round of negotiations approaching, Bill-C27 will strengthen the employer’s hand. This is a piece of legislation that should trouble everyone.
Translated by Andrea Levy.
André Frappier is a regular contributor to Dimension. He also serves on the editorial board of the online weekly Presse-toi à gauche and has been a member of the FTQ Montréal Labour Council for many years. André ran for Québec solidaire in the riding of Crémazie.