DB pension plans soon a thing of the past: report
A continuing shift in pension plan funding is driving more employers to rethink their pension plan structures, forcing employees to shoulder more risk in the process.
Contract work, career changes and a longer, more active retirement have changed what Canadians need from a pension. And, increasingly, they’re on their own when it comes to funding their days after work.
Faced with having to pump more money into plans or decrease the benefits, companies of all sizes are increasingly moving workers away from guaranteed defined benefit (DB) pension plans into open-ended defined contribution (DC) plans.
51 per cent of Canadian companies have already converted to DC plans for current employees or new hires, up from 42 per cent in 2008, according to a recent review by Towers Watson. And a further 9 per cent plan to convert this year.
And while employers may use the recent financial crisis as an excuse, the trend is really much more deep seated, according to Towers Watson’s Ian Markham.
These results suggest “that employers planning a conversion to DC are intent on doing so regardless of whether economic conditions improve, or a more sponsor-friendly legislative environment appears, or even in lieu of less dramatic changes to plan design or investment strategy,” he says.
In other words, unless you work in the public sector, those DB plans are pretty much on their last legs.
But there’s sat least some good news for existing DB plan holders fretting over their employer’s viability.
A recent Ontario ruling means that companies filing for bankruptcy protection can’t simply ignore an under-funded pension plan. Instead, companies will have to first make a case in court as to why pensions have to be trimmed, thus moving employees further up the food chain when it comes time to settle up with creditors.
Have you gone through a pension plan makeover? Do you feel worse off than you did before? Have you been left with a reduced pension following a bankruptcy?
By Gordon Powers, MSN Money
* Follow Gordon on Twitter here.
Posted by: Albertan | Apr 11, 2021 2:58:52 PM
At the end of the day this entire concept comes down to if you are willing to personally look after your own future or if you want to stick your head in the sand and expect somebody else to make sure you are alright.
Many people even in this modern day and age have an aversion to anything financial. They work hard with long hours to earn money but don't take the necessary time to become educated in financial matters (and thus lose large amounts of potential money). Its sad and almost criminal.
Defined benefit plans should be phased out as the don't put the onus of planning and knowledge on the individual receiving them. Therefore you have caretakers of it that don't have the stake and reprocussions that you have if you personally control your retirement plan. Basically in plain English if your sole retirement plan is a defined benefit plan you have put all your eggs in one basket.
So it really comes down to do you want to be a person that says I've got a pension so no saving or finanvial knowledge is requried with the possiblity that it could be taken away from you. Or would you rather be a person that has that money sitting in a wekk researched and diversified investment scheme suited to your own needs that will guarantee the money you need to retire? Seems like a no brainer to me.
Just always remember that if you are starving in retirement that you can blame nobody but yourself as you didn't plan well enough.
Posted by: Ian Makus | Apr 11, 2021 4:46:42 PM
What Albertan seems to be ignoring is that some DB plans where the employees control the pot of money (Usually Unionized workplaces) are in such good shape that it makes no sense to have other retirement plans, such as RRSPs. If your pension is paying you an amount that would put you into a higher a tax bracket then there is no advantage to an RRSP.
THis is why teh government cam up with the TFSA.
Some people are just getting by and have noe "extra' income to save for retirement.
It never ceases to amaze me that people who are in a good position tend to those in a bad position for their situation. Hey Albertan you obviously have a well paying job or business to be able to do some financial planning.
You don't get to take the piglet from the sow, then blame the sow when she squeals about it.
Posted by: Dr. W. Lind | Apr 11, 2021 7:16:55 PM
@ Albertan, I made a choice 20 years ago whether or not to go DB or DC. I went DB because the payout was so much more lucrative. Now that I am ready to retire, I am soooo glad I made that choice. I have always maxed out my RRSPs, TFSA, and hidden hundreds of thousands of my hard earned $ in other tax shelters. Looking back, the only mistake I made was putting money in RRSPs. When I reitre, I will be well, well, well into the highest tax bracket.
Posted by: UDECIDE | Apr 11, 2021 7:37:06 PM
I have participated in a public DB pension plan for 29 years. I had the option of a much higher salary initially in private industry. I chose security with the DB pension. My friends who did not enjoyed handsome expense accounts and write-offs that I was unable to partake. That is the choice I made. While for some of my 29 years I may have regretted this decision (i.e., watching these people drive Lexus' and Mercedes and take expensive business trips), it is interesting to note who is doing the whining today--my friends! We all had and still have choices Canadians.
Posted by: Doug | Apr 11, 2021 8:40:23 PM
I thnk the manure is going to hit the ventilator on these DB plans as soon as the baby boomers retire.Public sector workers have been promised huge pensions.The real problem will arise when their children and grandchildren find out who's paying for all that generosity.Their taxes for programs that we consumed will be so high that they'll be in more trouble with savings that we are now.
In the private sector,business and labour can be held accountable,and have to find a formula that works for both of them.In the public sector, taxpayers just get bigger bills.
Some historians are referring to the generation that fought WWII as "the greatest generation". The way we are going,I expect historians to refer to the "boomers" and the generation that followed them as "the greediest generation".Not because some built wealth,but because so many lined up for free lunches.
Posted by: Tara | Apr 11, 2021 8:51:17 PM
Other than civil service plans, most other DB plans (teachers for examnple) are well funded and not looking to provide pensions on the backs of newer workers. Ontario teachers, for instance, are contruibuting more during their careers and have given up some future indexing as well. They are the model to follow.
Posted by: Not a Boomer | Apr 11, 2021 9:07:50 PM
@Doug. Who are you to refer to "boomers" as "the greediest generation". I suspect that you are unemployed and/or uneducated to make such a ridiculous comment. For the record, no one is handing anyone a pension today. People must have worked 30 years plus to even be 'entitled' to these pensions at 60% of their base salary (most requiring a minimum of five to eight years of University I might add and paying 12% of their gross pay for 30 years). Doug, instead of whining and wanting what your friends or parents have--get out and work for it yourself and while you are at--please give yourself a hard look in the mirror instead of being jealous of others.
Posted by: Denni | Apr 11, 2021 10:30:41 PM
Its a matter of who decides who gets what money.
let me explain.I work in the oil patch raise a family on a single income ,drive a 15 year old truck and live in a dumpy old house with a leaky roof.mean while the goverment collects 17percent royalty tax at the well head, more hidden take , when the petroleum is sent to the refinery to be cracked into gasoline ever stage of processing involves some level of goverment tax..... be it the increased cost ofproduction caused by taxing ....the refinery, the cost of the workers wages bieng taxed , the trucking and pipe line companies ect........ ect then taxed again @ 6percent provincial and 9 percent federal taxper liter at the pump.my question is .when did we as citizens decide to give up our rights and owner ship of this resource i dont recall signing any papers authorising the goverment to spend any of my money or for that matter ever citizens money on our behalf. by my reckoning the goverment owes us all a huge swack of cash for so iresonsibly spending huge sums of money they were never rightfull entittled to spend on our behalf... hey i have potholes in my driveway I need to fix too!!! nevermind the leaky oof and paying to get my kids a decent college education!!!
Posted by: Canuckguy | Apr 12, 2021 4:42:10 PM
@Dr. W. Lind "When I retire, I will be well, well, well into the highest tax bracket"
Awww, poor you.
Posted by: Dr. W. Lind | Apr 16, 2021 7:40:49 PM
@Canuckguy, not sure what your point is? Are you trying to put me down, in a childish way, for making a wise decision? Are you capable at all of providing an intelligent comment? Are you and Doug related?
Posted by: jefferyj | May 24, 2021 5:13:37 AM
This is great when in 1990 GM retirees lived 17 months after retireing.The increases in people having to retire early made the unions fight for 30 and out. This is all good until the Government takes your pension and freezes the cost of living for 7 years but increases the cost of living 3% a month. The Federal Government has GM Retiree Pensions frozen until 2015, live with that.This is to say it would not matter if you were to save Rich or Poor.The Government will find a way to get it ,Toni give back to 30,000 retirees their earned pensions. Just reenstate the Pension Cost of Living that was earned with over 30 years of service to General Motors.