Essar Steel wants to give less to pension plan
Sault Ste. Marie steelmaker makes request to Ontario's Ministry of Finance
A major northern Ontario employer is asking for relief from its pension obligations, and some say it’s a sign of what the future holds as the workforce ages, and pension funds struggle to meet expectations.
Essar Steel Algoma in Sault Ste. Marie has asked for permission to contribute less to its pension funds, to help the company stay afloat.
There is already a shortfall, meaning there isn’t enough money to cover all future payments.
Essar would be expected to fully fund the pension down the road.
A retired union representative with the United Steelworkers has been explaining the situation to thousands of other retirees in Sault Ste. Marie.
“We would refer to it as between a rock and a hard place,” Don Barill said.
The province's Ministry of Finance still has to approve Essar’s plan.
The research director for the Institute for Research on Public Policy said this is another sign that pensions of the future will not resemble those of the past.
“The phenomenon of defined benefit pension plans is certainly falling quite substantially because of the kinds of issues Algoma Steel is facing,” Tyler Meredith said.
He said pensions that force employees to share more of the risk are becoming the new reality, and added the changing demographics and poor investment returns are the problem.
“The average funded ratio is 85 per cent,” Meredith said.
“So that means that if you took all the assets and liabilities of plans together, there is only 85 per cent ability to meet ongoing liabilities, which is a significant problem.”
Meredith said pensions that force employees to share more of the risk are becoming the new reality.
Essar, and Vale, a major employer in Sudbury, have both already gone this route for new hires.