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Pensions and Trust

Another story from the past (2008), just about when Nortel Networks was about to fall apart 

Yesterday I spoke of the Class Action Suit against my current  former employer  (Nortel Networks) by employees who were part of the Pension Fund that the company discontinued this past year. Needless to say the announcement of this class action suit has caused a great deal of discussion in my company and I find the discussion points fascinating.

This was the now Embattled Nortel Pension Plan

As background in the mid-90’s there was a great deal of discussion about how the Defined Benefit pension plan was useless to younger employees because all it did was constrict their ability to put money in their RRSP’s due to a very high Pension Adjustment (I sat on a study committee about this topic), and so there was a push to introduce a new pension plan that was less restricting in terms of Pension Adjustments. A new pension was brought in, which many people adopted, but I just never got around to changing.

Two years later another “investors” pension came in, where you could try this new pension which had an even lower pension adjustment or you could opt out effectively as well. Again, more people moved around, but this time, I wondered, why the company wants me out of the existing Pension? My answer was, it must be good, so I stayed in it.

Last year it was announced that the original pension program was going to be stopped and capped (i.e. the value you have in it now, is not lost, but nothing new can or will be added to it), along with the cancellation of any retirement health insurance and other benefits that were part of this retirement package (many older employees were exempted from this decision, anyone 52 and older at the time is what I remember).

The loss of the pension and the health benefits is a significant kick in my retirement plans, and with this class action suit not including me, as I wrote yesterday, I must rework my retirement plans due to this.

The interesting discussions that have started in the company is, “Why would you trust the company to take care of you when you retire?”.  Many current employees are complaining that they aren’t part of the class action and are thus out in the cold, and their comments are being answered with the, “Why did you expect the company to honour their agreement?”, which seems odd to me.

Do You Trust Your Company Pension

I guess my first reaction to this is, why wouldn’t I? If when I got hired, I was told there was a pension program in place that I would be part of, after 2 years, and that it is part of my benefits package, why would I assume that this was something I couldn’t plan around?

If I didn’t think I was going to be at the company for a long time (which I didn’t at the time) I might make other plans for retirement as well (assuming the pension would be small) but I certainly wouldn’t assume that it would be unavailable or changed in the future.

In Canada (I believe) private pensions are governed under fairly strict rules of conduct and funding, and it is unlikely that a private pension would “collapse” and be unavailable due to mismanagement (I didn’t say impossible, I said unlikely), and they are run as a 3rd party Entity from the company (thus if the company went bankrupt, the pension shouldn’t be an asset that creditors could plunder to get their money back). If I am incorrect in my assumptions, I assume one of my readers will correct me here.

I made the assumption (after being at the company for more than 8 years) that the pension might be a part of my retirement plans, and if I somehow made it to retirement age at the company, it would be very nice, however with this change in the pension, that is no longer the  case (I sill have a great deal of equity, but I have lost benefits and growth of the fund).

I guess my question to my readers is, what do you think of this?

  1. Is it fair for a company to change their pension system to help them survive financially? This pension plan was a heavy strain on the company’s capital spending.
  2. Is it correct for an employee to assume their pensions are “safe” and will not be changed because of the agreement of employment they signed when they were first employed by the company?

I have my opinions (which I think you can guess by my writing), but I am always interested to hear what my readers think as well.

Feel Free to Comment

  1. This is one case where a union can help out. Unions do seem to look out for their members with regard to pensions.

    There are always divergent views amongst employees. If you have a workforce filled with young, transient people, they will probably not be interested in contributing to a pension. They would rather make more money in salary. The older employees are more interested in pensions.

    I worked at a company that was facing lots of layoffs after a plant closure. The pension was defined benefit, and most people ended up taking the commuted value (an actuarial calculation of what your benefits are currently worth). The managment had a tough time explaining that two people with the same amount of experience would have a different commuted pension value if they were of different ages. Older people were closer to retirement and receiving benefits, so had a higher pension value.

    Seems that while the stock market was doing well in the 90s, employers took the opportunity to shift pensions from their own responsibility to their employees. This also happened in the US with the introduction of the 401k. It’s an advantage for an employer to shift the risk of a defined benefit to the employee in the form of a defined contribution.

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