Assaults on Pensions Continue
The latest attempt to wiggle out of pension obligations to make the news is by the Globe and Mail in contract negotiations with its 440 unionized workers. Workers have rejected the latest offer and have given their union leadership a mandate to strike.
Initially, the Globe and Mail wanted to move workers from a Defined Benefit (DB) pension plan to a Defined Contribution (DC) pension plan. Later they offered to allow current workers to remain in the DB plan (with higher contributions), but new workers would go into a DC plan.
If financial pressures continue to mount for the Globe and Mail, it seems likely that there will be more attempts in the future to modify pension plans to reduce costs.
There are many factors that go into how much DB and DC plans actually cost a company, but the bottom line is that if the company is saving money on its pension, then retired workers, on average, must be getting lower benefits.
All this can be upsetting news for the wave of baby boomers reaching retirement age, but these assaults on pensions will intensify in the coming years. This isn’t what I’d like to see happen; it is a prediction, but not a wish.
Initially, the Globe and Mail wanted to move workers from a Defined Benefit (DB) pension plan to a Defined Contribution (DC) pension plan. Later they offered to allow current workers to remain in the DB plan (with higher contributions), but new workers would go into a DC plan.
If financial pressures continue to mount for the Globe and Mail, it seems likely that there will be more attempts in the future to modify pension plans to reduce costs.
There are many factors that go into how much DB and DC plans actually cost a company, but the bottom line is that if the company is saving money on its pension, then retired workers, on average, must be getting lower benefits.
All this can be upsetting news for the wave of baby boomers reaching retirement age, but these assaults on pensions will intensify in the coming years. This isn’t what I’d like to see happen; it is a prediction, but not a wish.
I'm no expert on pensions, nor the Globe and Mail's situation in particular, but a company might want to switch from DB to DC to reduce risk. The actuaries behind G&M's pension plan would, I'm sure, require G&M to contribute enough to cover a lot of risk scenarios. By moving to a DC plan, G&M saves money by transferring their risk to their pensioners. Hence, the pensioners may not actually be getting a reduction in their expected benefits, but they would be getting an increase in their risk exposure--something no retiree really wants.
ReplyDeletePatrick: You're right that the company prefers to eliminate risk, but there are other factors. I don't know specifically about the Globe and Mail's accounting practices, but many companies fund their pension plans with optimistic projections of investment returns. This means that employer contributions to the pension plan are low for young employees and much larger for older employees. As a company's work force ages, they would much prefer to switch to a DC plan because it will be cheaper.
ReplyDeleteYes, that is so wise, let us move the risk to the people who don't get paid to understand the market.
ReplyDeleteOh and while we are at it, let's handicap them by having only a select few high MER's available at their disposal.
Connie: You've hit on the biggest problems with letting people handle their own pension money.
ReplyDelete