Union News - September 2017
The following article was submitted by the winner of the Diana Gee National UTE scholarship.
Note: In February UTE issued https://www.ute-sei.org/en/news-events/news/stand-future-our-pensions-future-our-bargaining-and-future-our-pay-system It noted the strength we have on standing together in lobbying on important issues such as the attack on pensions through Bill C-27.
The purpose of a pension plan is to provide its members with income during retirement so that at the end of their careers, pensioners can relax and enjoy their time without worrying about if they will outlive their savings.1 When comparing between plans, the better plan for the members is the one that best achieves the objective of having a pension plan at all: financial security. Given lower risk tolerances in retirement, financial security is accomplished through having stable income streams that retirees can depend upon. Retirement income is comprised of government sources, personal savings, and employer pension plans.
As with all pensions, the hope is that contributions paid into the plan will grow during a worker's career to provide for their retirement. There is always the risk that the investments will not earn as much as projected, leading to a funding shortfall. Where pension plans differ is in who bears the loss in the case that investments underperform.
One type of employer pension plans is the Defined Benefit (DB) plan. DB plans promise a specific, predefined pension income upon retirement, independent of how the contributions have grown. If there is a shortfall, the employer will pay the difference so that the pensioner can maintain a stable income level.2 With DB plans, the employer chooses to accept the investment risk because they understand that retirees rely on pension income to meet basic needs. This makes sense, because employers have a higher risk tolerance than the retired, who are some of society's most vulnerable members. While this may cost the employer more money in years of poor market performance, they choose to protect their employees who often cannot afford to lose this income stream.
Unfortunately, many companies have been switching away from DB plans due to their higher cost; registered DB plans have decreased from covering over 30% of private sector employees in 1977, to only 11% in 2013.3 Recently, Target Benefit (TB) plans, a new type of employer pension plan, have emerged. The TB plan changes the promise of a predefined pension income to a target that may or may not be reached, depending on market conditions. If markets underperform and targets are unmet, rather than the employer paying the difference to pensioners, retirees will receive less money.' This means that retirement security will be forever uncertain, as the level of future retirement income is not guaranteed. Retirees will no longer be able to depend upon their employer pension plan as a stable income stream, as TB plans force pensioners to face the financial risk. For the plan members, TB plans are worse than DB plans because they provide a lower level of financial security. TB plans save the employer money at the expense of the retired.
Helen Dong, Greater Toronto Region