Most Canadians today are not financially prepared for retirement. According to recent polls, over two-thirds of us (68%) don’t have a retirement plan, 30% have paltry or no savings, and 62% end up retiring earlier than they expected or wanted.

The Broadbent Institute, in a recent study, found that half of Canadian couples between 55 and 64 have no employer-provided pensions. Fewer than 20% of middle-income families have saved enough to adequately supplement the Canada Pension Plan (CPP) and Old Age Security (OAS).

“The vast majority of Canadians without a private pension have totally inadequate retirement savings,” says the institute’s executive director, Rick Smith. “We have a retirement crisis that requires urgent and immediate government action.”

This action would ideally involve a substantial increase in the Canada Pension Plan. At present, the CPP pays a maximum of $12,780 a year, but many retirees don’t qualify for the maximum, so the average CPP amount for men is only $9,626, and for women $5,922.

Of course, most retirees also receive the OAS, up to a maximum of $6,839 annually, and the poorest seniors also get the Guaranteed Income Supplement (GIS). But the combined plans still fall below $20,000 a year for an individual, far less than is required for even a minimally secure retirement.

The current federal Liberal government has promised to enhance the CPP, starting next year, but only to begin gradually increasing pension payments from one-quarter to one-third of average earnings by 2025. This “improvement” is far too little and far too delayed.

The battle over pension surpluses

It’s not just the deficient amounts of their pension payments that are making life miserable for many of the elderly in Canada. Those who work in the private sector also suffer from the failure or refusal of their governments to protect their pension plans from employer attacks.

There was a time, back in the 1960s and ‘70s, when all the contributions to a company’s pension plan by employers were considered deferred wages. It was money that belonged solely to the workers, and being saved exclusively for their retirement.

Implicitly, this included any surplus that might accumulate from the pension fund investments. But in 1985, when Conrad Black was closing many Dominion Store branches in Ontario and laying off hundreds of workers, he also brazenly withdrew millions of dollars from the surplus in the employees’ pension plan. Since there was no law or regulation prohibiting this seizure, the employees’ unions had to take Black to court. It took a long and bitter legal battle, but eventually a judge ordered Black to restore a portion of the confiscated surplus to the pensioners – but, significantly, far from the entire amount.

Again, in 2006, after Monsanto refused to share its pension plan surplus with laid-off employees, another lengthy legal struggle went all the way to the Supreme Court. And again, although the court ruled against Monsanto, it stated that the laid-off employees were only entitled to a “fair” share of the pension surplus.

These court rulings were hailed by the unions as victories for workers’ pension rights. And so, to a limited extent, they were. But pensions in the private sector still remained vulnerable to two other massive company incursions.

The DC vs DB conflict

The unions and other champions of retirees’ rights have unfortunately failed to prevent the conversion of most private sector pensions from Defined Benefit (DB) to Defined Contribution (DC) plans.

A DB plan is usually funded by both company and employee contributions and provides a fixed income upon retirement. So, during a market slump, when investment returns from a fund decline, the company has to make up the shortfall to maintain the guaranteed benefits.

Companies understandably chafed under this obligation, but, up to 40 years ago, the unions’ bargaining power was strong enough to keep most DB plans intact. Then came globalization, free trade, and an enormous boost in corporate power that drained much of the unions’ influence. So much so that forceful pressure by employers has since led to the conversion of most DB plans to DC plans, although DBs still exist in some large corporations – at least until they go bankrupt.

Under DC plans, benefits are no longer fixed and guaranteed. They are determined by the rise and fall of the stock markets. Employers don’t have to contribute more to compensate for investment losses, so retirees are forced to accept shrinking pensions. This conversion of so many DB to DC plans in the private sector raises the urgency for a significant improvement in public pensions.

DB government plans secure – so far

Employees of both federal and provincial governments still benefit from the far superior DB plans in which their pensions are determined by their years of service and based on their best five years of earnings. But elsewhere in the public sector, retention of DB plans is not so secure.

The latest incident of a public entity attempting to convert to a DC plan occurred when Carleton University in Ottawa demanded that its support staff accept this radical worsening of their pension plan. It took a five-week strike by the 850 members of CUPE Local 2424 to compel the university’s officials to back down and maintain its DB plan.

But similar DB-to-DC plots are brewing in other public sector institutions, clearly encouraged by federal Finance Minister Bill Morneau’s infamous Bill C-27. This proposed legislation, if passed, would allow federally regulated Crown Corporations to switch from DB pension plans – not specifically to DC plans, but to something called “Targeted Benefit Plans.”

Basically, TBPs are situated somewhere between the DB and DC versions. They are admittedly somewhat better than DC plans, but not nearly as good as DB plans. This is mainly because, as its name implies, a TB plan targets benefit amounts, but doesn’t guarantee them.

Payouts can be reduced if the target benefit is less than 100% funded, so the TBP could be described as a “hit or miss” system. If the target is missed, the plan could turn out to be not much better than a DC plan. And indeed, among the multinational business groups that have implemented TBPs over the past ten years, 25% of them have had to reduce benefits.

So NDP MP Nathan Cullen was not far off the mark when he denounced Bill C-27 as “an attack on workers’ pensions.”

Fortunately, the bill has languished in parliamentary limbo since Garneau introduced it last year – probably not so much because it lacked support in the House of Commons, but because Morneau was exposed as having a blatant conflict of interest. A firm that bears his name – Morneau Shepnell – is one of the principal promoters and administrators of Targeted Benefit pension plans.

The big bankruptcy debacle

By far the most dire threat to private sector workers’ pensions is what happens to them when a company goes bankrupt. They have absolutely no government protection. The company is allowed to grossly underfund its pension fund, and executives, shareholders and creditors get precedence over workers in the liquidation of the firm’s financial assets.

The bankruptcy of Sears Canada last year was only the most recent example of this callous mistreatment of employees. Thousands of other workers were similarly abused earlier when Nortel, Wabush Mines, Indalex, and other large companies declared insolvency. But Sears’ inhumane abuse of its 16,000 laid-off employees and 18,000 pensioners was especially egregious, leaving them with no severance pay, drastically reduced incomes, and the cancellation of their insurance and health care benefits.

For a long time, Sears employees had complained about their pension fund being grossly underfunded (by $270 million) at the same time that the company was paying a whopping $3.5 billion in dividends to its bondholders and shareholders, even while its sales and profits were dropping.

One of the many promises Justin Trudeau made during the last federal election campaign was that he would provide more protection for workers’ pensions. As with many of his other promises, however, this one has been broken. His Innovation Minister, Navdeep Bains, when asked about the plight of Sears employees and retirees last fall, inanely said that “the government is connecting Sears employees with services to help them through this difficult time.”

This pathetic statement was no better than Trudeau’s feeble excuse at a later press conference that “we have compassion for the Sears’ pensioners’ plight, but there are no easy answers.”

But there actually is an obvious answer. It may not be easy, but it is well within the Liberal government’s capability: Amend Canada’s Bankruptcy and Insolvency Act to:

1. compel companies to fully fund their pension plans,
2. prevent companies from denying retirees the full payments and benefits from these plans to which they have contributed and are entitled; and
3. give employees and retirees a priority over investors, executives, and creditors in the allocation of the bankrupt companies’ financial assets.

Only legislation can right pension wrongs

Unfortunately, the prospect of this government undertaking such legislative reforms to help pensioners – without immense political pressure – is highly unlikely. As historian Christo Aivalis puts it, “Liberal governments tend to run for office more progressively than they govern when elected. This government is certainly of the mindset that protecting investors is more important than protecting workers.”

Michael Powell, president of the Canadian Federation of Pensioners, makes the same point. “The freedom that our governments give big companies to flout workers’ pension rights will continue,” he says, “as long as there is no law or regulation to stop them. Make no mistake, what these companies are doing to their workers and retirees is perfectly legal. Unless the current bankruptcy laws are changed, It’s only a matter of time till the next Sears.”

In the meantime, bereft of any such government intervention, Sears pensioners were left with no option other than to take their case to court. Given the depressing results of previous such law-suits undertaken by Nortel and other afflicted company pensioners, the best they can expect – after a prolonged legal process – is a court-directed ruling that at least a small part of their pilfered pension payments will be restored.

It’s clear that only amendments to the bankruptcy laws can redress this outrageous mistreatment of private sector workers and retirees. And the call for this legislative reform is not coming just from unions and other pro-worker progressives. It is shared by at least one prominent retired business leader. His name is Gwyn Morgan, and he was formerly a director of five global corporations. Here are excerpts from an op-ed he recently wrote for the Winnipeg Free Press, under the title “Pension funds need to be protected”:

The root cause of this travesty is that, under Canadian bankruptcy law, secured creditors such as banks and bondholders stand ahead of pension plan members in the distribution of insolvency assets.

From 2005 to 2013, Sears sold its prime Canadian real estate assets and sent $3.5 billion south of the border to those shareholders by way of special dividends and share buybacks. That the Sears Canada board would make the unconscionable decision to approve of this massive asset stripping, while leaving its pension plan woefully underfunded, begs for legal retribution.

Prime Minister Justin Trudeau likes to portray the image of a leader looking out for the little guy. It’s time he walked the walk. The federal government should act now to change the bankruptcy law to prevent private-sector defined benefit pension plan members from seeing their futures torn apart in bankruptcy court.

When such an outstanding business leader so strongly urges the Trudeau government to protect Canadian pensioners, surely this should inspire the launch of a campaign to make this long-delayed legislative reform happen. Preferably, this should be before the next election, if only to avoid a repeat of the cynical promise-breaking that occurred after the last election. Or, even worse, before the possible election of a Conservative government that would never dream of changing a law that so one-sidedly favours employers over employees.