Where did you say my pension went?
92% of private sector defined benefit pension plans are in a deficit position, a number which has more than doubled over a five-year period, according to a new report by the Certified General Accountants Association of Canada.
The gap has climbed from $160 billion in 2003 to an estimated $350 billion in 2008, and continues to grow.
“Pension plans should not be allowed to metamorphose into empires of debt,” said Anthony Ariganello, president and CEO of CGA-Canada. “The recent events with national companies such as Nortel Networks, AbitibiBowater, Fraser Papers and CanWest have highlighted a need to better preserve pension plan solvency and improve member protection.”
The report calls for the Canadian retirement system to afford greater protection, and to replace unsustainable defined-benefit (DB) pension plans and inadequate defined-contribution (DC) pension plans with hybrid models that draw upon the best elements of each.
20 years ago, the majority of those with pensions were covered by DB plans, which provided a benefit for life based on tenure and earnings. Today, most workers with employer-sponsored pensions rely on DC plans, where retirement income depends on the amount of money you’re able to put aside and the returns – or, more recently, the losses – you generate.
The report also points out that current tax rules work against Canadians without employer-sponsored plans since they simply cannot save as much for their retirement as those who have guaranteed pension arrangements, like those commonly seen in the public sector.
Are you worried about the guarantees on your company's pension plan? DC plan? How's that been working for you?
By Gordon Powers, MSN Money