5 minute read
Letter to the Editor
Defined Benefit Pension Plans Defined Benefit Pension Plans are pension plans that are determined by a formula involving the number of years worked, the salary of the employee and some factor. These pensions provide an assured pension for the individual retiring. Unlike a lot of other pension schemes or pension funds, Defined Benefit Pension funds do not depend on the status of a stock exchange at the time of retirement or after. This assured feature of a Defined Benefit Pension Fund has been shown to produce a positive effect on retiree’s longevity and health.
Political opponents and well paid analysts have continually and loudly followed a well known truism – repeat a lie frequently enough, loudly enough, include a small tidbit of truth and avoid contested discussion and the lie will be perceived and accepted as the truth.
Defined Pensions have been characterized as unsustainable with the sponsors assuming all the risk and providing ultra-rich pensions for the recipients. What are the facts? Defined Benefit Pensions are essentially deferred wages, just as other benefits are part of the employee’s wages.
In technical or professional work, it is common practise for employers to pay considerably more in contract pay than they would pay for the same job done by full time employees with benefits, one of which would be a pension benefit. Why? Employers are well aware that their contract workers do not have access to the benefits which are provided to the full time workers. The contract workers have to provide these for themselves. Therefore benefit packages are seen by the employers as part of their employee’s wage. These higher contract salaries are required to be paid in order for the employer to be competitive in the marketplace. Pensions are similar to the other benefits in the package except that the payment is deferred to a time later in life when the employee is retired – a deferred wage. These funds are not immediately available to the employee but are indeed an expected part of their pay – deferred wages. Is this deferred wage peculiar to middle income workers, to public sector workers or some small sectors of private industry? Indeed, it is not unique to them. In actuality, there are many examples of this happening in many sectors of society. Because these are frequently very influential or greatly admired or even revered individuals, they are not generally used as examples.
Pro athletes typically are at the upper end of the salary scale. Many of them are taking a huge salary in smaller chunks spread over years, after they have passed their best or even possible earning years. These are clearly deferred wages because they are not doing anything at that later date to earn it. This is advantageous to the employer and to the recipient. Because of tax laws it is advantageous to both parties, but that does not make it any less a deferred wage. CEOs undoubtedly have had their own accountants working with them to ensure that wages, bonuses, huge severance pay packages and stock options would provide them with pensions in their retirement – money to be received in the future which is part of their remuneration as a consequence of their job.
Are Defined Benefit Pensions sustainable? Some are, some are not. The critical question
is – what makes one sustainable and the other not? The sustainable Defined Benefit Pensions have been well managed. Money was placed in the fund when the funding was due and the pensions were updated with small infusions of funds by both the sponsor and the employee when it was required. Studies have shown that well managed funds pay up to 80% of an employee’s pension from the earnings of the pension fund. As little as 10% of the pension’s payment comes from each of the two contributor’s payments to the fund. Poorly managed funds were neglected or in some instances raided for funds to backfill the need for cash by the sponsor. In the public sector and in some businesses, the siren’s call of the “pay as you go” technique of funding the pensions as they became active was heeded. Of the ways in which pensions are paid, this is the most expensive over time and the least efficient and effective of any. “Well managed” comes back to the work done by the CEO, manager or people in charge. These people were responsible for maintaining the integrity of the fund and its sustainability. There were actuaries available to provide direction and guidance for keeping the funds healthy. So were all these funds sustainable? Yes! They aren’t in some cases now, not because of the structure of the fund but rather the failure of the CEO responsible to ensure that the segment of the employee’s deferred wage was kept safe and secure. The second question to be asked is “if some Defined Benefit Pension Funds i.e. deferred wages are not sustainable (payable), then what actions need to be taken by governments to ensure that all wages of employees are paid”. What legislation allows such salaries to be legally left unpaid? Even further with respect to questions - why do we allow the discussion on sustainability and pensions to target the pensioners and their alleged greed as being the fault when mainly it was the result of total mismanagement of the funds. This is a classic case of blaming the victim.
Are Defined Pension Funds deferred wages? The final confirmation that this indeed is the case can be done through a thought experiment or, for that matter, a real experiment. Take an industry and divide it in half. This could be done with school divisions. Have one half advertise positions with wages the same as the other half, but zero pension benefits and the other half advertise positions with Defined Benefit Pensions as part of their benefit package. You will quickly notice the quantity and even the quality of the respondents to the advertisements will vary dramatically and will verify the fact that pension benefits are in fact wages, even though deferred, and applicants try to go to places of employment with better wages.
We need to change the narrative and clearly and completely defend our legitimate position and reject the well paid opponents who are disrespecting our legitimate position and our earned wages. They’re blaming us for the problem with Defined Benefit Pensions when the real problem is the sponsor and their mismanagement or their unjust attempt to avoid paying legitimate deferred wages - wages agreed to and earned, not icing on a cake provided free of charge.
