Ever heard of a target benefit pension plan? It’s the latest thing!
What most of our members have now is called a defined benefits plan. You and the employer defer a portion of your wages until you start to draw a pension. It’s an amount agreed upon beforehand, through a formula, and includes indexing as well—which you pay for.
The other pension plan that you often hear about is called a defined contribution plan. You pay into the pension fund, but you receive whatever the stock market and interest rates will allow when it comes time to receive your pension.
Now we have a new concept: the “target benefit plan.” Under this system, your contributions may be capped, your promised benefit is not guaranteed upon retirement, and it can even be reduced after you have retired. The main point of target benefit pension plans is to shift the burden of risk away from governments and profitable corporations onto employees and retirees.
Funny. Sounds a lot like a defined contribution plan, eh?
The government claims that its changes will not affect the core public sector pension plans, under the Public Service Superannuation Act, the Canadian Forces Superannuation Act and the Royal Canadian Mounted Police Superannuation Act. But introducing them as a general option for the wider federal public sector—which will affect many of our members working in airports and Crown Corporations—is the proverbial thin edge of the wedge.
This so-called “hybrid” plan is both unnecessary and unwise. Secure defined benefit plans are in no danger of going under. The picture grows brighter by the day, in fact, as investment returns and long-term interest rates are growing. Pension funds were already rebounding last year, and continue to do so. Air Canada, for example, reported a pension fund deficiency of $3.7 billion in 2013—which was entirely eliminated by this past January.
But the government seems intent on pressing on, and is already preparing legislation. Consultations with stakeholders were over in 60 days, a very short period indeed when so many stand to be hurt. Not only do target benefit plans eliminate the security of a defined benefits plan, which is bad enough; they also remove any incentive for employers to provide them. (The PSAC consultation brief may be read here.)
But there’s also a wider problem: nearly two-thirds of Canadians have no workplace pension plan at all. Even adding together the CPP/QPP, Old Age Security and (for those who qualify) the Guaranteed Income Supplement (GIS) is too little for many retirees to live on. Hacking away at government pensions only makes a bad situation worse.
One obvious solution for Canadians as a whole is to increase the CPP/QPP. The PSAC has been working with the Canadian Labour Congress for some time to press the government to double those benefits, increase the GIS and establish a national pension plan insurance fund. But CPP/QPP reform ran into a federal brick wall last December, after years of work building a reform consensus among Canada’s ten provinces and three territories. This government simply doesn’t care.
It goes without saying that we’ll organize to resist the government’s proposed changes. But every Canadian deserves a secure and happy retirement, and that, too, is worth fighting for. As the saying goes—we are all affected.