That’s not true. The current minimum funding level is 70%, with certain minimum contribution requirements each year until a certain funded status is obtained.
Most public sector defined benefit plans (teachers, municipalities, states, etc.) have no minimum funding requirements and set up as “pay as you go” plans, meaning the government only has to fund benefit distributions. The participants rely on the backing of the government authority.
Glad to hear they have upped the level. But to me 70% is extreamly low. I wish they would increase it to 90%, And at 90% require a plan to bring it back to 100%,
As far as I know (famous case, which IIRC involved the sort-of-recently-released “Lord” Conrad Black) following a situation in the 80’s where the company basically closed its stores and reopened as individual franchises, cancelled pension plans since the persons involved were no longer employees, and tried to abscond with the plan’s surplus - Canada does not consider the surplus the property of the contributor, it belongs to the beneficiaries. Of course, all that does is give the contributing employer a contribution holiday when the plan is in a surplus, which essentially is a refund on the installment plan.
But yes, an article I read long ago in the Economist discussed pension plan protections around the developed countries. Probably due to Robert Maxwell who jumped off his yacht when it was discovered that he’d gutted his company’s pension plan to cover debts for his media empire.
Stelco’s shortfall in Ontario was due to Bob Rae, premier at the time, deciding to give them 10 years instead of 5 to get the plan solvent. Needless to say, it made things worse since they proceeded to lose more money and go bankrupt, while avoiding payments to the plan for a few years. Sears Canada recently folded, in the same situation, way behind on its pension payments. I know when our company years ago (mid 90’s) decided to teach us about the business’s finances, they pointed out how much benefits were costing, especially the pension plan. A bit of deeper digging showed that this was because the pension board had determined that they could no longer fund retirement benefits from operating costs - prescription, glasses, extra medical, etc. So they were in the middle of a 5-year process to create an additional fund to cover the cost of retiree benefits.
yes, I heard that the biggest liability for assorted states and municipalities (Detroit being the worst) was that politicians bought labour peace by promising the moon in decades to come, knowing they’d be long gone before those pensions came back to haunt them.
Actually, that makes sense to me, keeping in mind that I’m not a professional finance guy. I think the $278 per month amount was their projection of how much you would receive when you retired, with investment returns already calculated in.
Yes. What a defined benefit pension usually does is apply a formula to a salary - for example, my pension pays 1.66% per year of your final average salary if you have less than 20 years of service. If I worked for 10 years at a salary of 35,000, my pension would be 16.6% of $35K, or $5810/year. It would be $5810 whether those ten years were from age 20-30 and the money just sat there until I was 55 or whether those 10 years were from 55-65 and I began collecting immediately. The difference between the employee contributions (if any) and the payout is made up through investments and contributions from the employer.*
The payout gets larger if I work under the same pension for 30 years for two reasons- one is that if I start at $35 K at age 25 and work until 55, my final salary will be more than $35K and the other is that the percentage goes up- for under 20 years, I get 1.66% per year. For 20-30 years, I get 2% a year ( which is 60% after 30 years) and for over 30, I get 60% plus 1.5% for each year over 30.