Letter to the Editor

Iread the letter to the editor written by Ray Sitter with great interest. It was an impassioned letter and I believe that the author had the very best of intentions, if not the best knowledge as to how pensions work or don’t work. At best, his research and knowledge of pensions is lacking. At worst, it was an attempt to pour gasoline on the pension flames.

Mr. Sitter used the term “Defined Benefit Pension Plan” but conveniently omits the basic fact that there are three (3) types of defined pension plans, each with its own peculiarities. There is: 1) the Career Average defined benefit 2) the Final Average defined benefit and 3) the Best Average defined benefit I will attempt to clarify this for you by giving you the following examples and their outcomes. For this, I will assume that Alice starts her career at a salary of $25,000 and receives a $2,000 raise each and every year for her 35 year working career. In her 35th year, her salary will have risen to $93,000. These numbers may closely reflect a teacher’s salary over the past 35 years.

Let’s look at the pension benefits for Alice under each of the three options. Under #2 & #3, her pension would be $62,300 per year. However under #1, her pension would be only $41,300 per year. It is more of a true reflection of her earnings as it takes into account her earlier years. For 19 out of the 35 years, her gross income would have been less than her pension income under options #2 or #3.

The difference in her pension would be $21,000 for each and every year she lived in retirement. Now let’s assume that her employer had 15,000 employees. This would give her employer a potential liability of $300,000,000 for the

employees’ pension. And that would be for each and every year. What sane employer would want to take on this liability?? If we were to go back 60 years, we would find that employees worked until age 65 and then had the decency to die around age 72. Pension plans were quite stable and able to pay out pension funds without worrying too much about being underfunded. Today, employees are able to retire earlier with full benefits and no reduction in their pension benefits. It is possible to retire at age 55 with full pension benefits. Therefore, what you have is an employee who contributes for 10 years less into the pension plan but lives 35 years longer than her predecessor. Ask your math teacher if he truly believes that the same formula is sustainable with the different parameters. In his second last paragraph, Mr. Sitter gives a choice of two employment opportunities, one

“Today, employees are able to retire earlier with full benefits and no reduction in their pension benefits. It is possible to retire at age 55 with full pension benefits. Therefore, what you have is an employee who contributes for 10 years less into the pension plan but lives 35 years longer than her predecessor.“

with a Defined Benefit Pension and the other without. I grew up in Winnipeg’s North End. That may not mean anything to anyone who did not grow up in the Holy Land, but we were taught at an early age that there was no validity in a twosided proposition. There was always a third side to everything. Let’s add a third side to Ray’s proposition,

the third side being no Defined Pension Benefit but the funds that would have gone into the pension are now diverted to your personal RRSP. Everyone knows that an individual RRSP has growth potential and flexibility that no pension plan can possibly match. Given the third choice, anyone who ever passed Grade 8 would opt for the RRSP. In short, the choices given by Mr. Sitter were not complete nor were they fair.

Unfortunately, Mr. Sitter, like the British at Hong Kong during WWll, has his guns pointed in the wrong direction. Proper research would have pointed his efforts in the direction of the Canada Pension Plan and its theft of funds from Canadian taxpayers. It is of a degree that makes Bernie Madoff look like a nickel and dime hustler.

The maximum required contribution to the CPP is currently $4,850 per year, half to be paid by the employee and half by the employer. Assuming that the current contribution level stays constant, (It will not) if you start at age 25 and contribute for 40 years to age 65, you will have contributed a total of $194,000 to the plan. If the plan had a growth rate of 5%, it would have grown to $585,878. At 6%, it would have grown to $750,955. At 10% (what a well-managed fund should return) it would have grown to $2,146,574. That represents a fair amount of change.

The benefit to the recipient is calculated to be ~$12,000 per year. The return on your investment is roughly from a high of 2.0% to a low of 0.5%. No self-respecting financial advisor would consider this a decent return on your investment. They would call it abysmal at the very best.

And that’s the good news!!! The bad news comes when you die. Assume that you die at age 65 with no spouse. The death benefit is a whopping $2,500. That’s out of your total contribution of $194,000. Perhaps Mr. Sitter’s question should be, “What happened to my $191,500??” or my $583,000?? Or my $748,500?? Or my $2,144,000?? It disappeared, that’s what happened to it.

In the next breath, politicians will tell you that retired Canadians do not have sufficient income to maintain a lifestyle in retirement. Of course they don’t!! You have just stolen anywhere from $500,000 to $2,000,000 from each and every Canadian who contributed to your sacred CPP. And to add insult to injury, the provinces now want to get into the pension game. After all, it is morally wrong to allow a sucker to keep his money. I won’t even go into what Pigmeat Markham had to say about it.

My question is, “Why aren’t Canadians mad as Hell about this theft, shouting it from the rooftops and doing something about it.” Or are they so apathetic that they refuse to get off their collective butts?? Or are they really so ignorant of finances that they just don’t understand that they are being financially raped??

Perhaps it’s time to put the real problem in the spotlight. The question of a Defined Benefit Pension Plan vs a Defined Contribution Pension Plan pales in comparison to the real threat to retired Canadians income. Your input to this matter would be greatly appreciated. §

Grands ' n ' More Winnipeg Presents: An Evening with

Barbara Coloroso

Barbara Coloroso is an internationally recognized speaker and author in the area of parenting, teaching, school discipline, non-violent conflict resolution and reconciliatory justice. She is the author of five international best sellers.

Discussing her latest book The Bully, The Bullied, and The Not-So-Innocent Bystander

• Knox United Church 400 Edmonton Street • October 14, 2015 7:00 - 9:00 pm • Tickets $20.00 – McNally Robinson Book Store, Grant Park Shopping Centre – Barb: 204 - 257 - 7511 (after September 1) – grandsnmore@gmail.com

Barbara Coloroso's accommodation provided by William Mahon