July 25, 2014
The Honourable Kevin Sorenson, P.C., M.P.
Minister of State (Finance)
House of Commons
Ottawa ON K1A 0A6
The collected retiree groups that have endorsed this letter represent hundreds of thousands of retired pension plan members in Canada. We are writing you to express our serious concerns regarding the government’s recent ‘consultation’ on a potential framework for target-benefit pension plans in the federal private-sector and for Crown corporations.
Our concerns are two-fold: first, we object to the unfair, opaque, and inadequate way that this consultation was conducted. Second, we oppose the Federal Government opening the way for employers to convert defined-benefit (DB) plans to target-benefit (TB) plans; thereby allowing sponsors to retroactively eliminate DB pension liabilities and potentially reduce pension cheques paid to retirees.
With respect to the first concern, all stakeholders have cause to be alarmed at the way in which this consultation was handled. Retired members of DB pension plans under federal jurisdiction have a significant and immediate material interest in the development of a framework for converting pension plans. Yet there was no indication that individual retirees were invited or permitted to participate in the process, only retiree groups. As a consequence, most retirees were not properly notified of the consultation and the proposed framework, and they were not made aware of the potential personal consequences of what the Federal Government is contemplating.
We are also concerned with the lack of transparency characterizing the consultation. The endorsing retiree groups were not informed or invited to in-person consultations with the Minister, and learned of them only when the Minister declared the consultations closed. In effect, this was no consultation, but rather an invitation for some interested parties—but not all—to submit written comments to the government. Other aspects of the consultation were simply baffling. The consultation document inexplicably invited only plan sponsors to address fundamental questions, such as, “Should TBPs be an option available to employers and employees of federally-regulated DB or DC plans?” The lack of proper notification and consultation compounds the fact that there is already significant misinformation and myth surrounding these plans. target-benefit pension plans and “shared-risk” plans are persistently and routinely characterized incorrectly in the media. For instance, “shared-risk” plans are commonly described as providing “guaranteed” benefits, when—in fact—benefit levels are not guaranteed, but instead are contingent on the funded status of the plan. In New Brunswick, the government has admitted that communication with plan members prior to “sharedrisk” plan conversions has been inadequate, and retirees have initiated legal action in response to inadequate and misleading information.
The stakes could not be higher for retired plan members, who are typically least able to manage the risk of plan underfunding and adjust to reduced pension benefits in retirement. Furthermore, the stakes are particularly high for the retired members of the Canada Post Corporation pension plan. The conversion of DB plans to TB arrangements contemplated in the federal consultation paper would allow Canada Post to retroactively eliminate its DB pension liabilities. In one fell swoop, this would make the corporation significantly more attractive to a private-sector buyer. Recently, Blacklock’s reporter revealed that the Prime Minister commissioned research detailing the privatization of the United Kingdom’s Royal Mail. What that research would have detailed, was that similar treatment of the Royal Mail’s pension liabilities was an important step in the process of preparing it for privatization. Despite this, only a tiny fraction of the nearly 30,000 retired members of the Canada Post Corporation pension plan were included in the government’s target-benefit pension consultations.
With respect to our second concern, we call on the government to repudiate the notion that employers should be allowed to retroactively eliminate existing DB plan liabilities. These pension benefits were paid for through the deferred earnings of retired members, and formed part of their compensation and terms and conditions of their employment. It is unconscionable that the government would permit employers to retroactively escape their legal obligations in this manner. It is also highly offensive and unacceptable to Canadians; a June 20th Ipsos poll found that 94% of those surveyed agreed that “employers should live up to the commitments they have made to pensioners and employees.”
We therefore call on the government to clearly and unambiguously repudiate any changes to pension standards legislation permitting plan sponsors to eliminate past- service DB liabilities by way of converting to a target-benefit or “shared-risk” plan. We call on the government to cease any further development on framework legislation or regulation for DB-TB pension plan conversions, and instead act to stabilize and sustain existing DB pension plans in order to protect the benefits of all current and retired plan members.
We look forward to your response to this letter.
List of Retiree Groups Endorsing This Open Letter:
Jean-Claude Parrot for a group of 32 Canada Post Corporation retirees
Canadian Alliance of United Seniors (CAUS)
National Pensioners Federation (NPF)
Congress of Union Retirees of Canada (CURC) and its Area Councils
Congress of Union Retirees of Canada—Hamilton, Burlington, and Oakville Chapter
BC Federation of Retired Union Members (BC FORUM)
Canadian Union of Postal Workers Metro Vancouver Retirees Organization