Canadian Pension Plans Not So Good

The plight of Detroit is a somber reminder that the tragic falls of empires can still exist even in the modern-day era. Municipal bankruptcies have become all too common in America and a chapter 9 of this magnitude sent shock waves across the globe. Many questions can be asked how a former vibrant, manufacturing city with a population exceeding 1.8 million crashed to a city of ruins with just 700,000 citizens. Devoid of life and street lights, the city is terrorized by black and white jump suits instead of the traditional blue collars. It might sound like the plot to "Robocop," but the events that led to the financial collapse of a large American city resonates with so many working people all over the world because it exposed that public pension plans are not promises.

Government jobs are known to be lower-paid salaries relative to an equal private-sector job. But the trade-off in salary is off-set by better benefits and pensions. At least, that was the belief until Detroit unraveled and claimed its pension plan obligations as a liability to be considered in its bankruptcy decision. It is expected that all creditors will receive at most 20 cents to the dollar after proceedings are finalized: yes, that includes pension plan beneficiaries. With a world in turmoil and interest rates so low, are your pension plans safe?

DBRS evaluated the health of 461 defined-benefit (DB) pension plans world wide and is "mightily concerned." For the first time in a decade, the aggregate fund status was 78.6%, below the 80% minimum threshold they deem safe. More concerning was that 45% of funds world wide are in the "danger zone." For Canadians, news could not be worse. Not a single private DB pension plan had a surplus. Surprisingly, the government-run CPP had a surplus last year and is estimated to have enough funds for 75 years, although this is a defined-contribution fund.

Among the worst funds were three financial firms and two telecommunications companies. Check the list below to see if your DB pension plan is on the list, courtesy of DBRS.



Stay tuned for a second post explaining how a pension plan works and why they are failing.