THUNDER BAY, ON  -----  June 24, 2009  ---- The draft from Queens Park has brought with it some musings about pension reform in Ontario. Years ago many companies tried to reduce costs by offering employees defined contribution pension plans. My personal opinion is such plans should be discouraged at all levels simply because many of them leave pensioners broke.

Part of the reason for this is there is no tax incentive for businesses to do otherwise. That should change. Instead Ontario’s minister of finance Hon. Dwight Duncan is likely to shuffle so things around that may help some situations for defined benefit plans. Having said that there are some prices we may have to be prepared to accept.

I love the political acumen of Minister Duncan. He proposes allowing pension funds seeking solvency relief more time to make their payments to the fund. Up to ten years! By letting the company take the extra time to complete payments to the fund, pensions will be paid by drawing down the future value of the fund. If the payments are completed all is fine and well. Should the company go under then the pensions will be seriously short.

In allowing this type of proposal to go ahead the government becomes implicit in the planning for the pension fund. They should be prepared to offer some sort of assurance that the future value of the fund will be there for those who worked a lifetime to earn a pension. Perhaps in the form of an insurance premium companies will need to contribute to.

Attenuating the payment period has other advantages for the company. Since we are talking about defined pension plans here, when an employee retires the company must forward sufficient funds to an LIF to meet the contract obligations of the defined plan. The managers of the fund then guarantee the payments to the pensioner. At times like the present, the amounts transferred to the LIF are at record highs because the interest rates are so low. Perhaps by waiting a few more years investment earning may rise making it less costly to pension someone off. With interest rates at record lows, things can only go up!

Another way Duncan proposes to help seniors is by allowing them access to up to 50% of the funds locked away in their LIF. Simply put this will give the pensioner greater flexibility in their financial planning, but I suspect that a person who has spent a career in a sawmill or teaching school may not be equipped to make the kind of decisions that will put them ahead by cashing in on their pension. For pensioners facing end of life situations I think this could be a very humane change.

Having just retired I have learned one important lesson. Nothing is guaranteed! That includes your health, your pension, and all of the things that are near and dear to you.

Minister Duncan is right in thinking that pension reform will be a defining issue in the coming years. Did I say election? Canadian pensioners need to be protected from the kinds of investments that have ravaged so many lives south of the boarder. In his musings about reform at no point did I see any commitment by the government to guarantee an employees pension. It may not be possible to collect enough taxes to do that and all of the other things we expect of government. Should he manage things right, the government might never have to. Lets hope he is right.