Should Pension Fund Regulations Be Changed?
” The company pension plans of millions of Canadians, battered and bloodied by weeks of stock market turmoil, will likely receive some form of relief from the federal government, federal Finance Minister Jim Flaherty said …” The Star 10/30/08
The preceding quote is from a speech made by Finance Minister Flaherty. The implication is that he is looking to protect the pensions of the workers. Unfortunately, that is not exactly what he means, although I am sure that he would argue that is what he is trying to do in the longer term.
He stated that he is looking into the possibility of changing the regulations governing the time companies have to top up the shortfalls in the pension funds. These shortfalls are a reflection of the recent dramatic drop in the stock markets. In other words, he may be easing the current regulations originally designed to protect employee pension funds.
Along this line, industry insiders have been lobbying the government to extend the current five years allowed to overcome shortfalls to ten or fifteen years. Not to do so, they argue would result in money being redirected from operations to pension funds.
On face value, to accept this premise as being reasonable is unwarranted, because as the market improves so will the value of the components of the pension funds. This means the degree of under funding will automatically shrink.
From my perspective, for the Harper/Flaherty team to weaken the current requirements could result in both investors and business taking it as a signal that the recovery of the economy is not likely for more than five years. If that conclusion is reached, it would exacerbate today’s economic problems.
If the Harper/Flaherty team decides to go ahead with this type of change, stringent conditions such as the following must be part of the amending law:
• Replacement funds must, at a minimum, be applied equally and not ramped up toward the end of whatever time period is applied.
• Companies applying for such relief must use monies normally allocated to dividends to help fund the recovery; i.e. company owners must assume their responsibility for their commitments to employees.
• A corporation’s executive and manager salary increases must not be more than the average increase allotted for the non-management staff after excluding the impact of government legislated minimum wage increases.
• The suspension of all forms of executive golden handshakes, stock options and bonuses must be mandatory until the pension funds meet the current reserve fund requirements at a minimum.
• Finally yet importantly, there must also be a financial requirement placed on these companies that the funds for existing pensioners can continue to meet obligations promised to their retirees.
This last point speaks to the Harper/Flaherty team decision to provide $25 billion for stabilization on Bay St in this time of uncertainty. They must also provide a similar stability for existing pensioners who have neither the opportunity nor the time to recover what market crash might have stripped from their pension funds.
Not to do so may not be a criminal act, but it is not ethical, and many will consider the lack of such an action as an overt act of social injustice.
What are your opinions on restricting executive salaries?
Answer:- To put a hard cap on them ( zero increase) would be somewhat unfair. Like most people they likely live a life style commensurate with their salary. This is why I suggest restricting them to the same percentage increase that they are prepared to increase non-management salaries/wages. This would apply in my thinking to all management not just executives. JBG
Posted by: R. Sylman | November 03, 2008 at 10:23 AM