The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Gary Norris published in the June 10,
2004 edition
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Jun. 10, 2004. 12:46 AM |
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Six of 10 pension plans fall short |
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By Gary Norris |
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Workers and investors stand to suffer as six out of 10 defined-benefit pension plans in Canada lack assets to pay their pensions. The Certified General Accountants Association of Canada estimated that $160 billion is needed to cover the shortfall. The 59 per cent of plans in deficit at the end of 2003 was an improvement from 67 per cent in 2002, thanks to a strong -- and likely unsustainable -- 14 per cent average investment return last year, the study says. But there still is "a looming social and economic crisis for Canada's defined-benefits pension plan holders and plan sponsors if the situation is not addressed," the group stated. It warns that "pensioners may have their benefits sharply reduced, and that inadequately funded pension plans may go bankrupt. Shortfalls will also negatively affect corporate financial results and share prices." Two of Canada's best-known companies, Air Canada and Stelco Inc., faced big pension shortfalls. Air Canada agreed to put more cash into the plan to make up the deficit over 10 years, but Stelco and its workers have not yet dealt with the issue as it seeks cost cuts to restructure. Stelco says its high pension costs are a reason it can't compete with U.S. mills, which have seen their pension costs drop after bankruptcy restructuring. The study said financial-market gains alone will not correct the situation, considering that the likely average long-term return for a balanced pension fund is about 6.5 per cent. The study of 847 pension plans, about one-third of the defined-benefit plans in Canada, estimates firms with defined-benefit plans must make payments totalling 10 per cent of their payrolls for five years to eliminate current deficits. On a hopeful note, it adds that "a combination of special payments and reasonable investment returns coupled with a modest increase in the level of interest rates could solve the situation for most pension plans." But it warns that accounting techniques can distort a pension fund's performance. |