The following media release was distributed to key media contacts to clearly state the NRPC view on an alternative approach to current pension wind-up legislation.  Recent announcements by Ontario Finance Minister Dwight Duncan have done nothing to address the needs of current pensioners caught in the throes of current bankruptcy laws and pension wind-up legislation.  Future good deeds are not what we need.  We need government action on alternatives, which the NRPC has outlined here.

This media release begins a major media campaign on the Financial Sponsorship Model.  More information will follow between now and the rally at Queens Park at noon on Sept. 15th.

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Media Release: To be released: Tuesday, August 31, 2010 at 3 p.m.

Don't wind up our pension plans!

OTTAWA - On August 24, Ontario Finance Minister Dwight Duncan announced new rules for managing the funding levels of Defined Benefit (DB) pension plans, coupled with increased employer contributions to the Province's Pension Benefits Guaranty Fund (PBGF). While the NRPC agrees with Minister Dwight Duncan that the PBGF should be put on a sound financial footing, it views the approach as a modest step in improving the long-term outlook for pensioners.

The NRPC believes that there is a better way to reduce the load on the PBGF when the government is faced with a severe economic crisis and major pension plan failures. The NRPC's proposal will significantly benefit pensioners in a bankruptcy situation and thereby diminish the need for higher corporate premiums to the PBGF. As an added advantage for the long-term health of private sector DB pensions, it will provide greater predictability for companies concerned about the effect of the government's pension valuation system on their cash flow.

One of the key recommendations of the 2008 Expert Commission on Pensions was to avoid winding up stranded plans through the creation of an Ontario Pension Agency*. With support from its financial and actuarial advisers, the NRPC has developed a similar, but private sector approach, known as the Financial Sponsorship Model (FSM). This approach also discards the rote assumption that winding up a pension plan requires conversion of the pension assets into annuities. Instead, FSM looks to the capital markets to take on the continuing obligations of a failing plan. It not only avoids the punitive costs of wind-up-by-annuity, but also offers some potential for investment growth. Pensioners will likely receive higher incomes, so the load on the PBGF and Provincial social programs will be reduced. In discussions with Ministry officials, the NRPC has indicated that the FSM could save $100M in PBGF obligations for the Nortel insolvency alone.

"Wind-up-by-annuity adds unnecessary expense and uncertainty for everyone" stated Don Sproule, National Chair of the NRPC, "There is no worse time to buy annuities than in the current economic conditions". He went on to say "On top of that, the $2.5B Nortel pension funds may cause a systemic failure of the Canadian annuity market, which can only cope with around $500M per year. There is no way we can expect robust competition in the conversion of our pension assets to annuities. Prices will go through the roof."
 
Thomas D. Levy, Chief Actuary for The Segal Company, noted "It is now apparent that the Ontario pension system is setting up itself, pensioners and the Ontario taxpayer for future failures. We need look no further than the Nortel pension plan catastrophe, the PBGF deficit and the unwillingness of Ontario employers to continue to ride the cash volatility roller-coaster of the current Defined Benefit valuation and funding systems."

Initial engagement by NRPC with the capital markets in Canada has generated major interest in FSM. Done properly FSM would create a significant win-win, for pensioners at large and the Ontario taxpayers. It will also give the province of Ontario a leadership role in safeguarding the future of Defined Benefit pension plans in Canada.

*Recommendation 5-2, Report on the Ontario Expert Commission on Pensions,
Harry Arthurs, November 2008.