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Target benefit pensions open the door to privatization and shift risks to workers

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Photo credit: Manon Parrot

On October 19, 2016, Finance Minister Bill Morneau introduced Bill C-27, which would bring in target benefit pension plans for the federal private sector and Crown corporations. Harper's Conservatives had considered the target benefit plan as a replacement for employees and retirees' guaranteed defined benefit pensions. Target benefit pensions shift all the risks of pension liabilities away from employers and governments onto the backs of employees and retirees, to be paid through reduced benefits and pensions.

Prequel to privatization

In 2013, the Harper government commissioned a study of the Royal Mail privatization. The study revealed that, to facilitate privatization, the U.K. government took on the £8.6-billion pension liability they had guaranteed. Royal Mail's privatization resulted in the elimination of 11,000 jobs, the closure of a fifth of its mail centres, and the closure of 5 per cent of its delivery offices, with more to follow as shareholders exerted pressure to maximize their profits.

Rather than ensuring the government live up to their pension commitments as was done in the U.K., Harper came up with the Conservative solution by taking a page out of Morneau Shepell's 2012 playbook. Morneau Shepell played a key role in the development and implementation of the outcome-based and risk-managed shared risk plan -- a type of target benefit plan. This plan had nothing to do with sharing the risk and everything to do with shifting the risk onto employees and retirees.

The Conservatives saw the target benefit plan as a way to shift the Canada Post paper pension solvency deficit -- $5.9 billion at the time -- away from the Corporation and the government, and onto employees and retirees. Without first eliminating the pension solvency liability, no one would buy the profitable Canada Post Crown corporation, which pays yearly dividends to government coffers and has a going-concern pension surplus of $81 million. Going into the 2015 election, the Conservatives shelved their target benefit plan due to opposition from union and retiree groups, representing 6.9 million members. On July 23, 2015 Trudeau promised: "defined benefit pensions, which have been paid for by employees and pensioners, should not retroactively be changed into target benefit pensions."

Conflict of interest

Bill Morneau, former chair of the CD Howe Institute, resigned as executive chair of Morneau Shepell after his election. On September 15,  2015, reports indicated Morneau still indirectly owned 2,066,480 common shares in Morneau Shepell, worth about $32 million, through a numbered company in Alberta. In a submission to the federal government, the firm wrote that target benefit pensions entail "excessive operating costs." These actuarial firms would be big winners if defined benefit pensions were converted to target benefit pensions, which require more frequent and more complex services from firms like Morneau Shepell.

Domino effect

Public service, military and RCMP defined benefit pensions plans are not directly affected by Bill C-27, but if the Liberals are successful in forcing the target benefit plan onto Crown corporation employees and retirees, the domino effect will come into play -- and it will only be a matter of time before they come for all defined benefit pensions. The CD Howe Institute floated the idea on April 4, announcing that the expanded CPP should be a target benefit plan. Surprisingly they did not call for the entire CPP defined benefit plan to be converted to a target benefit plan.

C-27 has to be changed! Liberals must be forced to keep their pension promises. A 2014 Ipsos Reid poll showed "that 92 per cent of Canadians agreed with the proposition that employers and governments must live up to their pension promises." Help stop the elimination of defined benefit pensions and prevent the selling off of our public services by contacting your MP.

View a video of CUPW president Mike Palecek addressing Bill C-27 at a demo here.

Peter Whitaker is Central Region representative for the National Organization of Retired Postal Workers and retiree representative for CPC Pension Advisory Council.

Photo credit: Manon Parrot

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