{"id":943,"date":"2009-05-26T16:40:30","date_gmt":"2009-05-26T20:40:30","guid":{"rendered":"http:\/\/www.cusjc.ca\/?p=943"},"modified":"2009-05-29T08:19:31","modified_gmt":"2009-05-29T12:19:31","slug":"some-pension-suggestions","status":"publish","type":"post","link":"https:\/\/www.cusjc.ca\/?p=943","title":{"rendered":"Some pension suggestions"},"content":{"rendered":"

Christopher Waddell<\/strong><\/p>\n

Further to Elly’s interesting post about pensions, some have been thinking about this for quite a while. Here’s what then Governor of the Bank of Canada David Dodge suggested in a speech in Montreal in November 2005 needed to be done to address some of the concerns Elly quite correctly noted are even more important issues today.<\/p>\n

“If defined-benefit plans are to survive, grow, and provide a source of<\/span> funding for long-term, riskier assets, it is important that Canadian policy-<\/span>makers consider taking steps to rebalance the incentives for sponsors to<\/span> operate defined-benefit plans. Let me mention a few of the things that<\/span> could be done.<\/span><\/span><\/span><\/span><\/span><\/p>\n

<\/p>\n

First, the provincial and federal governments need to make appropriate<\/span> adjustments to their pension laws so that the sponsors of defined-benefit<\/span> pension plans are responsible for all <\/em>residual risks to the pension plan\u2014<\/span>both outcomes that lead to deficits and outcomes that lead to surpluses.<\/span> <\/span><\/span><\/span><\/span><\/p>\n

Let me be clear. I am not saying that firms<\/em> should be given unambiguous<\/span> sole ownership of pension surpluses, but rather that sponsors<\/em> should<\/span> have that ownership. There are a handful of pension funds\u2014such as the<\/span> Ontario Teachers’ Pension Plan\u2014where both the employer and employees<\/span> are joint sponsors, and share ownership of any surpluses, as well as<\/span> responsibility for any deficits.<\/span> <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

The second step would be to consider rebalancing the tax treatment of<\/span> employer contributions. Currently, in most circumstances, employers are<\/span> not allowed to deduct contributions to a defined-benefit pension plan if<\/span> the going-concern valuation of the plan is more than 110 per cent of<\/span> expected future liabilities. This has certainly added to the bias against<\/span> sponsors allowing surpluses to build up in their pension plans.<\/span> <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Third, there are issues with Canadian accounting standards for pensions<\/span> in terms of valuation that have been posing challenges since they were<\/span> adopted in 1999. For one thing, changes in the annual discount rate used<\/span> to value pension liabilities can result in large swings in the amount<\/span> reported as pension expenses. For another thing, periodic actuarial<\/span> valuations of defined-benefit plans also flow through firms’ income<\/span> statements. Both of these issues lead to volatility in reported earnings,<\/span> which investors do not like. So, accounting standards have become<\/span> another reason for employers to avoid defined-benefit pension plans.<\/span> I have just listed three of the most serious problems facing sponsors of<\/span> defined-benefit pension plans. Of course, there are other issues as well.<\/span> <\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Nevertheless, addressing these three issues would be helpful in getting<\/span> the incentives right, so that defined-benefit plans can remain actuarially<\/span> sound. This would significantly reduce the risk that pension contributions<\/span> would be insufficient to cover future liabilities should sponsor firms go<\/span> bankrupt. That said, sponsor bankruptcy remains a risk for members of<\/span> private sector plans, and some form of risk-sharing arrangement is<\/span> desirable. There are a number of options as to how to pool this risk,<\/span> including encouraging the creation of plans sponsored by multiple<\/span> employers. However, I would argue against the use of pension benefit<\/span> guarantee funds, since they significantly raise the risk of “moral hazard,”<\/span> and further increase the bias against employers sponsoring defined-benefit plans.”<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Christopher Waddell is associate director of the School of Journalism and Communication at Carleton University and a former reporter, Ottawa bureau chief, national editor and associate editor of the Globe and Mail and a former CBC-TV parliamentary bureau chief and executive producer-news specials for CBC TV News.<\/em><\/div>\n","protected":false},"excerpt":{"rendered":"

Christopher Waddell Further to Elly’s interesting post about pensions, some have been thinking about this for quite a while. Here’s what then Governor of the Bank of Canada David Dodge suggested in a speech in Montreal in November 2005 needed to be done to address some of the concerns Elly quite correctly noted are even […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13,11,12],"tags":[],"class_list":["post-943","post","type-post","status-publish","format-standard","hentry","category-all","category-media-commentary","category-political-stragegy"],"_links":{"self":[{"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=\/wp\/v2\/posts\/943","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=943"}],"version-history":[{"count":4,"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=\/wp\/v2\/posts\/943\/revisions"}],"predecessor-version":[{"id":972,"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=\/wp\/v2\/posts\/943\/revisions\/972"}],"wp:attachment":[{"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=943"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=943"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cusjc.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=943"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}