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By: Adrian Mastracci
North Shore News
Business Section, “Loose Change”
Sunday, July 6, 2003
Much has been written recently about potential
shortfalls looming for some company pension
plans.
Estimates of $225 billion for Canada are making
headlines. In the United States, General Motors’ shortfall
alone is estimated at more than $90 billion.
While nobody has a precise grip on the scope
of the shortfalls, it is worrisome. Investors
are very aware that someone has to pay for
this.
The various reports raise important pension
issues that many investors, consumers and retirees
have yet to fully appreciate. The problems
can affect both private and public pensions.
Unfunded pension liabilities could become
a serious concern. The companies, the affected
parties, their advisers and the regulators
require a workable game plan. Even the public
can assist.
Pension issues are dear to many. And, of course,
to many of my clients, who frequently seek
advice on a variety of pension situations.
Dealing with pensions means making decisions
that are not reversible. Notable pension events
occur when:
- A choice is presented to join a
pension plan.
- An early retirement opportunity
is offered.
- A choice is to be made at normal
retirement.
- A pension value is transferred
a to a registered account.
- A pension value
is transferred to a new employer.
- An opportunity
exists to buy back past pension service.
Pension income has always been an important
part of the retirement puzzle. However, the
current debate on pension shortfalls rattles
some of the pillars and assumptions of retirement
planning.
The ideal scenario is a robust stock market,
a reasonable return on bonds and a growing
economic climate. However, while we wait for
that combination, it is best that the affected
companies remain profitable -- as long as possible.
There are only so many precious corporate
earning dollars. Funding pension shortfalls
will require some. Patient shareholders also
want some.
Well, how can we help?
One way is for the public to give more thought
to spending patterns. This will assist when
consumer choices exist.
As an example, buying the widget made at home
supports that company's pension plan. Buying
the imported widget helps the offshore pension
plan. This is becoming a bigger consideration
for many companies.
Companies have to ensure that consumers favour
their home-grown products and services over
other solutions. That message has to reach
all companies and consumers.
Those resourceful companies who pay special
attention to this dilemma will be more successful.
The resulting improvements in corporate profitability
will make it easier to deal with their pension
commitments.
Pension plans continue to be an integral part
of many retirement plans. Some rely on the
pension plan to provide a significant portion
of the retirement income.
Every member of a pension plan should become
more informed on its funding issues. The other
question is what can be done to improve the
future prospects.
The current pension debate has far reaching
implications. Some pension plans could face
difficult choices.
A troubling topic for many, especially retirees.
The continued health of retirement plans is
oftentimes dependent on viable pension prospects.
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