INDEPTH: PENSION
How safe is your pension?
CBC News Online
Reporter: Diana Swain
Producer: Bonnie Brown
From The National Nov. 15, 2004
Bankrupt companies are leaving many Canadians without the retirement security they were counting on. How safe is your pension?
When millions of Canadians go to work, they go on a promise of pay and pension, money for now, security for later. But what happens when a company doesn't fulfil that promise? In recent years, more and more Canadians have known the absolute misery of losing what they worked decades for.
Ray Bekaris
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Ray Bekaris imagined that in his retirement he would be home with his wife Marilyn, spending their time and money on their seven grandkids.
Though the kids are too young to know it, their grandparents' plans have been dealt a blow, one that's left them short both time and money.
"They're always asking now, Grandma, can you get me a Game Boy? Can you get me this game? Ah, well, Grandma will have to see," Marilyn Bekaris says.
Marilyn Bekaris
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They've been married 43 years, always lived in the same house, raised their kids, marked their milestones. Ray worked 12-hour shifts as a steelworker. Marilyn kept the family on track, and together, they kept it simple waiting for that day when Ray could punch the clock for the last time, and the pension plan he's been counting on all these years would kick in.
For 27 years, Ray earned his living at a company in Hamilton called Cold Metal Products. They rolled steel, the kind the Canadian Mint uses to make money. It was hard, dirty work, but a good pension was supposed to be the payoff.
Hamilton
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Last year Cold Metal went bankrupt. The factory used to be full of machinery, but it was all sold off to pay the creditors.
It was then people like Ray, only months from retirement, discovered it wasn't just the old building that was half empty. The company left the pension funds half empty, too. Ray lost his job and any hope of retiring.
"I was angry, obviously angry. I mean, a lot of years in here," he says. "You spend more time here than you do at home. The mill down at the back there was, at the time they put it in, was one of the most modern mills in North America. Rolled to a tolerance that no other mill could roll to, you know, and now look."
"He was so depressed that I was getting to the point I didn't know what to do anymore or what to say, to say something the right way, not the wrong way, you know, and him getting real quiet," Marilyn says. "And I'd say, 'Talk to me, Ray. You've got to talk it out.' And he would say, 'You have no idea what this feels like, Marilyn.'"
Tom Cuthbert
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In better days, there were over 200 people working at Cold Metal. Tom Cuthbert put in 35 years and was on the union executive. He helped negotiate the last collective agreement that spelled out what they'd all get when they retired.
"It's not worth the paper it's written on," Cuthbert says now.
When Tom and his wife Christine tried to collect his monthly pension, they realized how little money was left. The creditors list showed the pension was just one of many debts Cold Metal hadn't paid, and after the banks got their money and other secured creditors got theirs, there wasn't much left for the members of Local 4444.
"I was going to get $2,232," Cuthbert says. It's now $961.78. "So I got screwed."
Half of what he thought he was going to get.
"And right at the moment, at the time when they told me, I think I would have, if I'd had a gun, I'd have shot him, the president of the company," Cuthbert says, "That's the way I felt and the way a lot of other people felt, and I don't think it's changed that much."
No place in Canada illustrates how serious the problem has become better than Hamilton. Steel Town has taken a real hit.
Here alone in just the past five years, we found more than half a dozen companies that had gone bankrupt with under-funded plans. Hundreds of people who lost their jobs and lost much of their pensions, too, and it's not just the small players at risk. Mighty Stelco, one of the biggest steel companies in North America, is in bankruptcy protection. In fact, the pension plan at Stelco's Hamilton plant is short a staggering $660 million. The pension plans of 11,000 people in Hamilton alone hang in the balance.
Hugh O'Reilly
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Toronto pension specialist Hugh O'Reilly says workers are often out of luck. Canadian bankruptcy law puts employees near the bottom of the creditors list. When all the assets are sold off, the employees are way down on the creditors list.
So, how often do they see any money out of those sales?
"I would say probably almost never," O'Reilly says. "You could bring actions against directors. You have an ability in the province of Ontario to get support through the Pension Benefits Guarantee Fund, but typically with an insolvent company, there isn't going to be money lying around. Companies going bankrupt with an under-funded plan is unfortunately not a rare occurrence. It happens. It happens every day."
So why is it happening? Some people call it the perfect storm of the pension world.
Most funds were doing pretty well back in the late 1990s. Then in 2001, interest rates fell, the stock market crashed, the pension plans went with it. Now, three years later, a recent study showed a full 60 per cent of Canadian pension plans still don't have enough money in them, and if a company goes bankrupt before it can get the fund paid up, it's employees, people at the end of the their working lives, who pay the price.
Fear has turned labourers into lobbyists. Ewen Gordon and Paul Miller have been sent to Ottawa by their union, the Steelworkers, to lobby MPs for help. They want the laws changed to put workers at the top of the creditors list. Gordon has already been burned once. His pension was cut in half when the mine he worked for in B.C. went under.
Miller has 30 years on the line at that teetering Stelco plant. "It's my future, it's my retirement, and I'm not about to let somebody walk over top of me and pull the rug out from underneath me at the end of my working life. I deserve better," Miller says.
MP Pat Martin
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Manitoba New Democrat MP Pat Martin agreed to propose the change in a private member's bill, but he knows it won't get anywhere unless other MPs sign on.
Martin has seen a similar bill voted down twice before, but he says opposition MPs like him have more clout on the Hill now than they did a few months ago.
"This minority government opens up all kinds of options that private members' business does have an opportunity to actually become law," Martin says. "This is the advantage. In a majority government, for us to elbow our way to the front with an issue on behalf of working people would be a lot more remote."
Gordon and Miller might seem a little out of place on Parliament Hill. Still, they've managed to get a meeting with the Conservative labour critic Ed Komarnicki. He's agreed to hear their pitch, even though they're expecting a tough sell. "No party lines here. This is a Canadian human interest situation and we're hoping your party will support the upcoming bill which will be presented on the floor," Miller says.
Ian Markum
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They may be willing to consider it here, but corporate Canada isn't interested. It's fought against this before and will again. Ian Markum is a senior actuary with Watson Wyatt in Toronto, advising hundreds of Canadian companies about their pension plans.
He says elbowing banks from the top spot on the creditors list will only push companies into bankruptcy sooner. Banks won't lend the money if they can't be first in line to get it back, and they don't want to stand in line behind Canada's massive pension debts.
"Why should I the bank take the risk of lending money to this organization, and if things go down, I don't get my money back?" Markum says. "I mean, it sounds heartless because people think of banks as having tons of money, but remember, a lot of that is the people's money."
In fact, Markum says, most companies already feel pension plans are more trouble than they're worth. He did a recent survey and found 30 per cent of Canadian companies either intend to get rid of their pension plan or have already done it.
"I'm sad to say that in the best interests of the pension system, we should not be trying to strengthen the system any further in the best interests of today's pensioners and plan members because it will potentially destroy the system for tomorrow's employees," Markum says.
The greater good of the economy rings a little hollow here. Ray Bekaris likes to talk about the old days. Tom Cuthbert can't bring himself to do it. "You seen any of the guys from the old place?" Bekaris asks.
"I don't know how to face these people," Cuthbert says. "I've never been that kind of person to face telling people these things, and I think that's probably why I've tried to stay away from most of them is because I don't want to get frustrated. Because every time I talk to them, I get mad because of them and on behalf of them because I feel that I didn't do my job."
The lawyer, Hugh O'Reilly, says, "The problem is in the way the system works now. If you've got a situation where you have an under-funded pension plan and the employer's not making its contributions, even though it's supposed to be, you have turned the retirees and the other beneficiaries of that plan, you have turned them in to financiers of the company, and unlike other financiers of the company who lend money, they didn't get to make a decision about whether or not they wanted to take this risk on. You made them do it."
At age 60, Tom Cuthbert went out and found a job. Though he's officially retired, his ravaged pension can't finance the bills. He's working for another company doing the same job he used to for half of what he used to earn taking orders from men half his age. This is not how Tom Cuthbert planned to spend his retirement, and the more he thinks about it, the angrier he gets.
"I think they should go to jail. They're doing everything legally that they could get away with and they got away with it," he says. "What are you going to do? Nothing much I can do. If I'm at work and it starts getting to me, I'll just work harder, that's all. That's the only way I know how to get it out. If I don't get it out, I think I'll go crazy."
"A lot of people say to me, well, Ray, you got to get over it. Well, not me. I guess I take everything to heart," Bekaris says.
Ray found another job too. At 61, he's again pulling 12-hour shifts, this time making egg cartons.
"I'm going to have to continue working, unfortunately, until 65 I guess or maybe longer," he says.
"I think he's feeling like he's failed, he's failed in some way. I think that's what he's really feeling, that he's a failure," Marilyn Bekaris says. "I don't know whether he told you this or not, but he lost a kidney to cancer and we're still dealing with that every so often. He has to go in. And I know what he's thinking. He's not going to see any of his pension that he worked so hard for, and that's not fair."
Some economists say a slight increase in interest rates or a hike in the stock market could help many Canadian funds get, if not in the black, closer to it, but any of that would come too late for people who have already been left with little to show for a lifetime of work.
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According to a fall 2004 study by the Canadian Certified General Accountants
The study estimates that an additional $160 billion is needed to cover the current deficit in the pension plans. If all plans were fully indexed to inflation, they would require $240 billion.
About 59 per cent of "defined benefit pension plans" in Canada were in deficit as of Dec. 31, 2003. This was an improvement from 67 per cent of pension plans at the end of 2002.
In 2003, the average return on equity investment for Canadian pension plans was 14 per cent compared to the average return on equities of 26.7 per cent. This was due to a stronger performance in the stock market in 2003.
Most pension plans have funds to cover 80 per cent of their obligations. The CGA study says the plans would need at least 10 per cent return on investment over five years to bring the pensions up to 100 per cent. The study estimates that the average balanced pension fund will only receive a return on investment of 6.5 per cent.
Canadian pension plans need $15 billion just to make up for losses in the market in 2001 and 2002 following the Sept. 11 attacks.
In some cases where a company has gone bankrupt and the pension fund has been wound up so that pensioners only get a portion of what they expected, former members of the pension board, including employee volunteers, have been sued for millions of dollars.
Current legislation does not give pension plans any incentive to fund the plan any more than the minimum required by law.
Only a small minority of companies have opted to fully fund their pensions to correct pension deficits. One company was General Motors in the U.S., which issued $18.5 billion US in bonds to cover the pension deficit. In Canada, Imperial Oil paid in $500 million and Canadian Pacific $300 million.
The CGA report is that flat and career benefit pension plans are poorly funded compared to final average pension plans.
· A flat benefit plan gives a fixed dollar amount for each year of service at retirement.
· A career benefit plan provides a pension based on percentage of earnings over the entire period of employment.
· A final average plan provides the pension on a percentage of earnings in the last or best five years or service.
(Flat and career plans are usually part of union collective agreements where improvements are negotiated in collective bargaining.)
According to the CGA, 27 per cent of flat and career benefit plans in the private sector are funded below 70 per cent. Only two per cent of final average plans in Canada are funded below 70 per cent.
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