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Pension Crisis is a Myth? Not for Nortel Disabled!
Submitted by Leo Kolivakis, publisher of Pension Pulse.
I promised to shift my focus back to pensions. Jack Mintz wrote an article yesterday in the National Post claiming that the pension crisis is a myth:
The
myth that the pension system is in crisis grew out of the 2008
financial crisis. Canadians saw an average 20% loss in their
portfolios. Pension plans had a similar experience with some becoming
insolvent. Nevertheless, a 2009 DBRS survey of 70 defined benefit plans
showed that most pension plans were in relatively good shape. The OECD
has ranked Canada’s pension system as one of the most sustainable in
the world with elderly Canadians having disposable income equal to 95%
of working Canadians, third highest of industrialized economies. The
poverty rate among the elderly — less than 5% — is one of the lowest
among OECD countries
Household net worth at the end of the
third quarter of 2009 is six times disposable income, roughly the same
as in 2000 at the height of the high-tech boom. Canadians have
$5.9-trillion in net assets, including $2-trillion in Canada/Quebec
Pension Plan assets, Registered Pension Plans and RRSPs. Housing and
real estate equity accounts for another $1.9-trillion and other
financial and non-financial assets, net of consumer debt, total
$2-trillion (the latter is likely underestimated since Statistics
Canada measures private corporate shares at book, not market value).
Given that pension and RRSP withdrawals are fully taxed, Canadians have
more retirement assets in the form of housing or financial assets than
they do in pensions or RRSPs. These other assets, including housing
that can be downsized at retirement, cannot be ignored in any
assessment of retirement income adequacy. Certainly, the system is not
perfect. But there is no pension crisis. Ask the provincial ministers
of finance after surveying the evidence. Dwight Duncan, Finance
Minister of Canada’s largest province, was pretty clear about this
point after the December Whitehorse meetings.
The claim that
Canadians are not saving enough is generally not true — at least 80%
are saving sufficiently for retirement. As several studies concluded,
Canadians with less than $40,000 have been well protected by government
transfer programs, the C/QPP and tax policies with retirement income
adequacy at 90% or better. High-income Canadians (those with more than
$100,000) have lower replacement income (ranging from 50% to 70%).
However, the OECD argues that 50% replacement income at retirement is
often adequate for upper-income households, much less than the 70%
typically claimed.
The middle-income group is the current focus.
But here studies, once incorporating other financial assets besides
pensions and RRSPs, show that most have adequate levels of retirement
support. The best study by Statistics Canada suggests that about a
fifth to a quarter of middle-income Canadians (about 600,000 retirees)
have inadequate retirement income below 60% of after-tax working income.
However,
the analysis does not incorporate tax-free housing and private
corporate assets, which are significant retirement assets. We also do
not know how much of this middle-income group with low retirement
income has lost jobs during their career, suffered from family
breakups, arrived to Canada late in their working lives or have
significant assets tied up in their own private business whose income
is not included in tax files. This information is needed to figure out
the best policies to address any shortfalls.
The third myth is
that Canadians must have an occupational pension plan to have adequate
retirement savings. A recent Statistics Canada study by Ostrovsky and
Schellenberg published late in December raises serious doubts about
this claim. The authors show that individuals without occupational
pensions have better replacement income at retirement than those who
do. Obviously, the investment returns net of fees for various saving
instruments have not undermined the ability to ensure adequate
retirement income. Even if one ignored employment earnings after the
age of 65 (people without RPPs work more in later years), Canadians
without pensions have more RRSP, financial income and capital gains
compared to market income of those who have a pension, regardless of
income.
Some have argued that the RRSP system has failed but
even this claim is not supported by evidence. Most lower-income
Canadians do not always contribute to RRSPs since they have sufficient
retirement income through other means. Over 60% of unused RRSP
contribution room is in this category. Leaving out this group, a large
proportion of Canadians contribute to RRSPs for many consecutive years.
Compared to pension funds, RRSPs provide flexibility to savers since
the funds could be used for family emergencies and other contingencies
without being locked-in.
Some argue that, unlike existing
retirees, working Canadians will have difficulty earning good
investment income in the future. However, this is just an assertion and
not based on any particular modeling. Instead, a different argument
could be hypothesized. The return on assets could rise if global saving
rates, expected to decline due to heavy indebted governments and aging
in industrialized countries, are inadequate to support abundant capital
spending on infrastructure, alternative energy supply and economic
growth in emerging countries. With excess demand for saving, the return
on investment rises, making it easier to fund retirement needs.
Certainly, no easy conclusion can be reached without better analysis.
Overall,
Canadians have shown that they have made good decisions for themselves.
True, some Canadians might have inadequate savings for their retirement
and the system could always be made to perform better than now. Those
issues will be addressed by Ministers in the future. In the meantime,
we should not panic into adopting measures that are not evidence-based.
I think someone should show Jack Mintz a recent BMO survey
which showed one third of Canadians have no RRSPs and of those who do,
an overwhelming majority (80%) are not confident that their RRSPs
investments will provide enough for their retirement. Nearly half of
the respondents feel they do not contribute enough to their RRSPs to
meet their retirement goals.
But hey what pension crisis? It's
all a myth according to Jack Mintz, the appointed "expert" on the
subject. Why are Canada's public service unions not breathing easier after meeting with Treasury Board president Stockwell Day?
Apparently he did little to assuage public servants' fears that their
pay and benefits will end up on the table when the Conservatives
deliver their "roadmap" in next month's budget to dig Canada out of the
deficit.
But hey what pension crisis? Everything is fine and
dandy according to Jack Mintz. Perhaps Mr. Mintz should step out of his
Ivory tower and meet up with Nortel's disabled workers who are still fighting for a pension deal:
Nortel
employees on long-term disability leave say they will fight a deal
reached between the failing company, themselves and Nortel pensioners.
Some
disabled employees, including Jennifer Holley and Arlene Plante, are
going to Toronto to oppose court approval of the deal, which is
scheduled for March 3.Plante said she's fighting the agreement announced on Feb. 8 because it doesn't offer any protection beyond the end of 2010.
In
addition, it requires employees and former employees to give up their
right to sue Nortel Networks Corp. and oppose the payment of $92
million in bonuses to Nortel executives. Nortel asked U.S. and Canadian
courts to approve the bonuses last week.Plante said the
payments are obscene. The company maintains that it needs to pay the
bonuses in order to hold on to key employees until necessary work is
complete.
"The agreement is immoral," said Diane Urquhart, an independent financial analyst who has been helping the disabled employees.
Urquhart
said that money would go far if it were used instead to fund the
disabled workers' health and welfare trust. However, she said, the law
does not require Nortel to provide for the replacement income and
health benefits of the disabled under the current circumstances.
The 400 employees on disability are in a difficult position because the 12,600 pensioners are largely satisfied with the deal.
Plante admitted that the minority of employees on disability are also poorly equipped for their fight.
"We're not lawyers," Plante said. "We don't know how to do things like affidavits and motions."
Holley expressed frustration about the position disabled employees are in.
"We've got to kill ourselves trying to get this stuff together that we have no experience with," she said.
Nortel filed for bankruptcy protection in January 2009 and since then, most of the company has been sold off.
On
Feb. 8, the company announced it had reached a deal with its pensioners
and its employees on disability leave, who feared they would lose their
benefits when the company is finally dissolved. The agreement includes
a commitment from the company to pay long-term disability benefits and
pensioners' health benefits until the end of 2010.
In addition,
workers who were laid off without severance will each get a $3,000
lump-sum payment. The company will continue to administer its pension
plans until the end of September, and then a new administrator will be
appointed.
The pensioners, who are facing a $2.5-billion
shortfall in their pension plan, are also partially protected by the
Ontario government. Finance Minister Dwight Duncan announced Feb. 7
that the first $1,000 of their monthly pension payments will be
guaranteed under an emergency pension insurance fund.
Diane Urquhart is absolutely right, this agreement is downright immoral. She has completed an exhaustive analysis of the agreement, Nortel Disabled Bulldozed into Accepting Poverty for Life and Bonuses for Executives. Diane sent me this message:
My
main conclusion is that this Feb. 8th agreement is offering life to the
long term disabled employees in the short term of 2010, provided they
agree to live in poverty for the rest of their lives and agree to not
oppose the Nortel executives and key employees getting the additional
incentive payments that were announced on Feb. 8, 2010. John Doolittle,
Corporate Leader of Nortel, is providing scraps off the table for the
LTD employees, while protecting his own $1.7 million compensation for
each year of 2010 and 2011. The 418 LTD employees are having their
lives and quality of life sacrificed by the acceptance of this Feb. 8th
agreement for the benefit of the 17,749 Nortel Canadian pensioners, the
Nortel executives and key current employees, the U.S. junk bond owners
and other large unsecured creditors.
The reasons for my conclusions are set out in the new report.
I
plan to make additional communications to you about the steps that
dissenting LTD employees will be undertaking in order to correct the
mistakes that have been made in this Feb. 8th agreement affecting them
before this matter comes to court on March 3rd. Fortunately, there is a
process for the LTD employees who decide to oppose this Feb. 8th
agreement to do so by filing a Notice of Appearance by 10:30 a.m.
Eastern Time on March 1st. The LTD employees are now forced to hire
independent legal counsel at their own expense and I am getting calls
from LTD employees who are not well enough and cannot afford to send
independent legal counsel to be heard in court on March 3rd.
Ideally,
the Feb. 8th agreement will be amended before this Notice of Appearance
submission deadline so that the stress on the Nortel LTD employees will
be contained and there are no personal crises that result from it.
But
who cares about Nortel's disabled? Certainly not Jack Mintz or even
those other Nortel pensioners that cut a deal for themselves and left
their disabled colleagues out to dry.
If
you want to see the reality of many disabled in Canada, look no further
than the story of Sharon Segal who was diagnosed with Multiple
Sclerosis almost 35 years ago. Like far too many other disabled
Canadians, Sharon is caught in the disability poverty trap.
But
hey, it's all a myth, there is no pension crisis according to the Jack
Mintzes of this world. Give me a break! Have they no shame in making
such silly declarations?
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I have one solution - BUY MORE STOCKS !! BOO YEAH !!
"they make special dispensation to the Nortel folks there will be thousands more whose pensions are also in difficulty, lining up with their hands out."
hettygreen.....Well actually they already have made a special concession. They gave $200 million to the PGIF specifically for Nortel.
The opposition claim this was a typical political move because of the Ottaw by election that is coming up.
Basically if you are a large froup you will get recognition from the government as they love to buy votes but if you are regular lone voice out on the street and you have no pension plan but your RRSP or RRIF has taken a hit, well that is just too bad.
Governor Christie Declares "New Jersey on Edge of Bankruptcy"
http://globaleconomicanalysis.blogspot.com/2010/02/governor-christie-dec...
Leo nice to see you back on the pension trail again but why would you dignify anything written in the National Post with a response/refutation? The best thing to be said of the paper is that by providing a refuge for extremist, uninformed, hack journalists, it keeps them all in one place and out of the (relatively) reputable newsrooms.
It is indeed unpleasant when disabled pensioners are left in the lurch however there are plenty of other disabled persons who do not have any pension or benefits to assist with their special needs. I might feel more compassion for these folks (Nortel pensioners) if it could be shown they had no opportunity to opt out of these plans, especially when Nortel was hived off from Bell and, in retrospect, became a revolving door for executive looting. The company should have been de-listed 10 years ago. Unfortunately, our government was also taken in by the fraud (by way of their repeated subsidies to keep the company afloat despite it being mismanaged into the ground). This now places the politicians in a position of legal culpability. If they make special dispensation to the Nortel folks there will be thousands more whose pensions are also in difficulty, lining up with their hands out. Pandora's Box is about to be opened.
Illinois Pension Fund $61 Billion Underwater; State Borrows Money For 2010 Contribution; California $20 Billion in the Hole Again
http://globaleconomicanalysis.blogspot.com/2010/02/illinois-pension-fund...
"Would not be surprised to see many of our state teachers' pensions turn out the same way."
by girl money: You should Mish's site and all about union pension funds are going to make each state broke. A teacher in New Jersey can contribute $62,000 to their pension fund but retires with a package worth $1,500,000 plus another $285,000 for medical.
Sorry but that is rediculus and has to stop. Did we not learn anything from the legacy costs of GM?
Leo, good reporting on a very sad situation. Would not be surprised to see many of our state teachers' pensions turn out the same way.
In other news, it appears that your solar ship has finally come into port!
SunPower Shares Are Headed Higher: Tradershttp://www.cnbc.com/id/35457019
(TD, my apologies for a CNBS link, but this 'uns for our long suffering Sun King Leo.)
The reason why many do not contribute to their RRSP is many have pension plans. Count the number of government workers, policeman, fireman, teachers muicipality woers etc that all have nice little cadillac plans. There is just no need for an RRSP and that is why many friends and family members laugh at the situation as they are well taken care of.
Also too bad for Nortel but my tax dollars are fed up bailing out autoworkers, teachers and now more money into a PGIF. Nortel was in trouble for years and emplyees could have made better plans. Also a disability worker can get funds from CPP but individuals that are not disabled and don't have a pension have taken a bigger hit in this financial crisis and now we have to try and live on zero interest rates? The whole system needs some big changes.
The problem with the "managed deflationary de-leveraging over 30 years ..."
Understandably, no one wants to see asset prices suddenly re-priced to pre-1980 levels. Better to stretch that adjustment out over 30 years. That is the - impossible, unworkable - plan of the central bankers and their factors (governments, bill / tax collection agencies)
The "retirement funds" of the west are utterly dependent upon a POSITIVE return of 6-8%. A decrease to a 5% return is hugely destructive to the future of retirees. a decrease to 3% is catastrophic for most. A 2-3% return leaves hundreds of millions of people homeless and penniless in a decade or so. A 0% - or even NEGATIVE return is economic apocalypse.
To prevent a cascading daisy chain of rent failures, bond meltdowns, and currency collapse, the CBs are FORCED to goose the nominal returns of financial assets to at least 5%.
The result is continued deflation with a depreciating currency.
The markets are going to price in 30 years of "Japan" and that price adjustment will show up much more quickly than the bankers will be able to tolerate. So, I expect wholesale government take-over of the entire financial market system.
Hundreds of millions of people are arriving to their "retirement" destination - to find nothing but sand and tumbleweeds. What they bought from the financial services industry is nothing but an expensive - and heavily taxed - mirage.
Jack Mintz has no worries...he has a wonderful university pension to take care of his golden years. There is nothing like someone who suckles off the public teat telling the rest of us mere mortals that we should just calm down. Arrogant asshole. As for those Nortel retirees, I fear they are just the canaries in the coal mine.
Are you kidding...no one cares...the guys that run these places are sociopaths...whenever there is a budget cut the first thing they do is go after the weakest...but the majority of people don't care until it happens to them...
we live in a sick world...and it will get worse all over...
TOGETHER WE CAN MAKE A DIFFERENCE
and take our country back. Become pro active.
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