DB Pension Plans, Old debate in Wealthy Boomer with ?

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
coghlan
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Post by coghlan »

brucecohen wrote:
coghlan wrote:From what I've heard, Nortel is going to freeze both the earnings base and service as of Jan 2007. This may involve an "adverse amendment" as you suggest, but this is apparently the plan.
At this point I wouldn't pay any attention to rumours. Nortel is required by law to send each plan member a detailed statement of what's going to happen and how that person will be affected. I'd wait for that.

If there's an adverse amendment, the restructuring cannot proceed until the Superintendent of Pensions accepts it. While Nortel does have to notify every member of the adverse amendment and its consequences, Nortel does not need their approval. The PCO policy on adverse amendments states that even if accepted by the Superintendent, the adverse amendment can still be challenged in court. If Nortel has a union, expect a big fight. Even if there's no union, the affected group is easily large enough for a class action pension law firm like Koskie Minsky to challenge Nortel on its behalf. I'd be surprised if Nortel goes the adverse amendment route.
Update: following the bankruptcy announcement, current and deferred NT pensioners have indeed retained Koskie Minsky.
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Post by BRIAN5000 »

Phoned the Canada pension plan today trying to figure out what I would get in CPP.

I started work in 1975 hope to retire at 53,54,55 (2009,2010,2011) ( 50 was the target :oops: )

If I retire at 53 and take CPP at 60 I get 7440.60 yr 620.05 mth
If I retire at 54 and take CPP at 60 I get 7522.08 yr 626.86 mth
If I retire at 55 and take CPP at 60 I get 7595.76 yr 632.98 mth

From 53 to 55 I would qualify for $13 more per month. This doesn't seem like a large amount.

If I was retiring now with full qualification I would be getting $636.13 mth at 60. He wasn't able to tell me how many maximum pensionable years I would have. I need 40 minus the 15%. It appears from these numbers I miss out on the maximum.

In other words I don't qualify for the maximum reduced CPP at age 60 if I retire in any of 2009,2010,2011 he estimated 2012 or 2013 I might?

He wasn't able to tell me what rate of inflation/indexing they use to arrive at these numbers?
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Post by brucecohen »

BRIAN5000 wrote:Phoned the Canada pension plan today trying to figure out what I would get in CPP.

I started work in 1975 hope to retire at 53,54,55 (2009,2010,2011) ( 50 was the target :oops: )

If I retire at 53 and take CPP at 60 I get 7440.60 yr 620.05 mth
If I retire at 54 and take CPP at 60 I get 7522.08 yr 626.86 mth
If I retire at 55 and take CPP at 60 I get 7595.76 yr 632.98 mth

From 53 to 55 I would qualify for $13 more per month. This doesn't seem like a large amount.

If I was retiring now with full qualification I would be getting $636.13 mth at 60. He wasn't able to tell me how many maximum pensionable years I would have. I need 40 minus the 15%. It appears from these numbers I miss out on the maximum.

In other words I don't qualify for the maximum reduced CPP at age 60 if I retire in any of 2009,2010,2011 he estimated 2012 or 2013 I might?
Your CPP benefit is based on earnings/contributions over your "contributory period." That period began in 1966 or the year you turned 18, whichever is later. In your case, it looks like your contributory period began in 1974. I reckon -- but am nowhere near certain -- that you'd qualify for the max if you worked till 58 or 59.

You can do CPP what-ifs at your leisure on the govt's Canadian Retirement Income Calculator. I found the results a bit different than those I got over the phone, probably because the phone line people are accessing more current data.
He wasn't able to tell me what rate of inflation/indexing they use to arrive at these numbers?
There's an explanation somewhere on the net. It's very complex. IIRC, CPP does inflation-indexing on a monthly basis over your whole contributory period. I once tried constructing a calculator from the detailed specs in the CPP legislation but gave up.
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DB pension plan article

Post by coghlan »

http://www.cnbc.com/id/29961046

70% of DB plans have disappeared since 1990.
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Re: DB pension plan article

Post by brucecohen »

coghlan wrote:http://www.cnbc.com/id/29961046

70% of DB plans have disappeared since 1990.
Most didn't really disappear; they're still supporting retirees and in many cases still covering active workers. But they're in the process of disappearing because they're getting no new members to replace those who are dying.

What has happened is that employers have increasingly closed their DB plans to new hires, who either get a defined contribution plan (usually a 401(k)) or no coverage at all. At some point the membership of each closed plan will fall so low that the sponsor will either replace the remaining benefits with a life annuity purchased from an insurer or offer a lump sum payment equal to their commuted value.

Also, it seems to be fairly easy for a US company to walk away from its pension promise once it enters Chapter 11. In Canada, most of the jurisdictions require full funding before a plan can be wound up, unless the members agree otherwise. So few employers walk. I don't think the feds require full funding on windup, but am not sure.
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Post by WishingWealth »

At Yahoo News.

http://ca.news.yahoo.com/s/capress/0904 ... o_pensions
Ont. warns its pension guarantee fund can't cover auto workers if GM folds
Premier Dalton McGuinty is warning that Ontario's pension plan safety net isn't large enough to cover auto workers should GM go bankrupt.

He says the Pension Benefits Guarantee Fund has about $100 million in it - money that comes nowhere near meeting any liabilities for the auto sector alone, to say nothing of all the other troubled sectors.
...
IOW, it's a pay as you go system. And if the going gets rough....

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Post by Bylo Selhi »

N.B. Read his lips (or as Worthy might say, "read his nose.") Dalton said PBGF can't guarantee the auto workers. He didn't say that if opposition push came to pre-election, pragmatic shove the government of Ontariotaxpayers won't guarantee PBGF. Big difference ;)
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Re:

Post by coghlan »

brucecohen wrote:At this point I wouldn't pay any attention to rumours. Nortel is required by law to send each plan member a detailed statement of what's going to happen and how that person will be affected. I'd wait for that.
Well, here we are, 5 years later. I believe the Nortel pensioners are (were?) due for a 30% hit on their pension benefit, although I believe I read recently that there was some sort of decision in their favour.
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Post by brucecohen »

coghlan wrote:
brucecohen wrote:At this point I wouldn't pay any attention to rumours. Nortel is required by law to send each plan member a detailed statement of what's going to happen and how that person will be affected. I'd wait for that.
Well, here we are, 5 years later. I believe the Nortel pensioners are (were?) due for a 30% hit on their pension benefit, although I believe I read recently that there was some sort of decision in their favour.
Here's the most recent news report I found -- from July.
Ontario* estimates an average Nortel non-union employee who worked in this province faces an 18 per cent reduction in benefits. Workers who spent their careers outside of the province, and were entitled to indexed pensions, will see average cuts of 31 per cent for non-union staff and 25 per cent for unionized employees.

The cuts are deemed interim because benefits will be recalculated higher to reflect Nortel's liquidation sale that yielded total proceeds of more than $7.6 billion, far greater than the company had forecast.

Cash from the auction, plus an estimated $1 billion Nortel still has on hand after seeking creditor protection in 2009, will be split among bondholders, suppliers and former employees in a global process that involves conflicting and overlapping claims.
* I think Nortel stuck Ontario's Pension Benefits Guarantee Fund with the pension liabilities for its Ontario employees. Ontario is that only Canadian jurisdiction with a pension benefits guarantee fund.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by coghlan »

DB plans still under attack: http://goo.gl/BxOZM
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by ghariton »

Canadian Institute of Actuaries releases draft new mortality tables for pensions.

If approved, these new life expectancies could significantly increase DB plan shortfalls.

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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by parvus »

Or public sector deficits.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by brucecohen »

ghariton wrote:Canadian Institute of Actuaries releases draft new mortality tables for pensions.

If approved, these new life expectancies could significantly increase DB plan shortfalls.
From Benefits and Pension Monitor. Note the last sentence which points out that increasing longevity also affects sponsors of DC plans.
Although the effect will vary from plan to plan, adoption of the proposed mortality tables and acceptance of the study's prediction of future mortality improvements could also immediately increase pension accounting liabilities by five per cent to 10 per cent for many plans, potentially impacting corporate income statements and balance sheets. Gavin Benjamin, a senior retirement consultant at Towers Watson, says "just as sponsors were beginning to see a reduction in their pension deficits due to improvements in the global equity markets and rising interest rates this year, the increase in life expectancy suggested by the CIA study could reverse much of this gain." The implications of lengthening lifespan are not limited to sponsors of DB pension plans. Employers sponsoring defined contribution and other types of capital accumulation plans should also take note. “Increasing life expectancy could mean that employees with a DC or capital accumulation plan will need to save more in order to afford retirement", says Michelle Loder, Towers Watson's Canadian DC leader. "This could result in employees delaying their retirement until they have accumulated sufficient retirement savings, possibly challenging employers' ability to manage career progression and workforce objectives."
Still, this is probably a good time for plans to bite the bullet and start increasing their life expectancy assumptions, as rising interest rates have substantially improved valuation results. Also from Benefits and Pension Monitor (emphasis mine):
The solvency position of Canadian pension plans continued to improve in the second quarter of 2013 due to a sharp spike in long-term interest rates, says the Mercer ‘Pension Health Index.’ It stood at 94 per cent on June 30, up from 82 per cent at the start of the year, 87 per cent as of March 31, and 91 per cent at May 31. It says the financial position of pension plans improved in June despite the recent pullback in equity markets. This was mainly driven by the significant increase in long-term bond yields over the last two weeks. Long-term Government of Canada bond yields were flirting with three per cent at the end of June, up from 2.3 per cent at the beginning of the year and 2.5 per cent at the beginning of June. A one per cent increase in long-term interest rates would reduce the liabilities of most pension plans by 10 per cent to 15 per cent. A typical balanced pension portfolio returned -0.5 per cent in the second quarter and 3.6 per cent in the first half of 2013.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by SQRT »

It would be a little surprising if pension plans haven't taken a lot of this into account. Not really a surprise is it?
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by brucecohen »

SQRT wrote:It would be a little surprising if pension plans haven't taken a lot of this into account. Not really a surprise is it?
Hard to say. Three or four years ago IIRC the sponsors of the Ontario Teachers' Pension Plan -- the Ont govt and the teachers union -- both insisted that OTPP staff were over-projecting longevity and thus setting contributions higher than they needed to be. So the three parties commissioned a study by an outside expert. He concluded that the OTPP staff longevity assumptions were not long enough. Also, even if plan staff already know they should extend the longevity assumptions, the new CIA standards will give them clout in persuading sponsors who naturally don't want to spend any more that necessary.

The point about DC plans in the BPM clip I quoted might affect the retirement planning software many/most sponsors now provide to plan members. If the software sets the terminal age with or without a user override, ISTM it will have to be revised to use the new, longer assumptions.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by SQRT »

Interesting. This seems like a pretty significant increase in longevity. However, longevity has been increasing for a long time and it would seem surprising to me if smart people didn't anticipate further increases before current cohorts died. But I 'm not an actuary.
Anyway, being already retired and collecting my pension, I will need to be concerned that I probably will live longer than I thought. 90 doesn't look like that much of a long shot anymore. This is probably a good thing as long as the money lasts. I guess annuities will get more expensive.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by AltaRed »

I think it is a good thing if one has the quality of life to enjoy it. An additional 5 years in a nursing home do not appeal to me.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by SQRT »

AltaRed wrote:I think it is a good thing if one has the quality of life to enjoy it. An additional 5 years in a nursing home do not appeal to me.
No kidding. That's why I workout every day and keep my weight down. It's my mind that worries me more.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

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U.S. Pension Insurer Issues Dire Warning on Pooled Plans
More than a million people risk losing their federally insured pensions in just a few years despite recent stock market gains and a strengthening economy, a new government study said on Monday.

The people at risk have earned pensions in multiemployer plans, in which many companies band together with a union to provide benefits under collective bargaining. Such pensions were long considered exceptionally safe, but the Pension Benefit Guaranty Corporation reported that some plans are now in their death throes and could not recover. The aging of the work force, the decline of unions, deregulation and two big stock crashes have taken a grievous toll on multiemployer pensions, which cover 10 million Americans.

Bailing out those plans seems highly unlikely. But if they are simply left to die, the collapse of the federal insurance program is all but inevitable, the report said, leaving retirees in failed plans with nothing. It added that the program “is more likely than not to run out of money within the next eight years” as plan after plan collapses.
So the crisis is not over yet, at least in the U.S. And in Canada?

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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

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ghariton wrote:So the crisis is not over yet, at least in the U.S. And in Canada?
The [financial] crisis is definitely not over for many who think (or hope) it is. For those who never believed it was [over], and who have taken whatever steps they can to protect themselves, this particular crisis has simply become an ongoing factor to be integrated with other investment risks. It's now like living with the threat of a market correction or an earthquake in LA or BC, you know it'll happen, but you don't know when or how big it will be.

We live in an age of "in-your-face" crises: We are aware of an ever increasing babble of critical events (any one of which could easily and quickly boil-up with consequences that could begin to destroy critical elements of western civilization) that are constantly vying for our collective attention. Today's potentially existential crises include the Ukraine, the West Bank, ISIS and Syria/Iraq, floods in the mid-west, drought in the western US, rising sea levels, global debt and, apparently, the threat of US Pooled Pensions going broke. Any one of these could trigger new events that could lead to societal destruction on a massive and horrendous scale. Many of us know this because, currently, we are remembering how the same dominoes fell 100 years ago.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by Zipper »

A California megaquake might be enough to tip the US over the edge.

Or a Vancouver one for us.
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

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mudLark wrote:Today's potentially existential crises include the Ukraine, the West Bank, ISIS and Syria/Iraq, floods in the mid-west, drought in the western US, rising sea levels, global debt and, apparently, the threat of US Pooled Pensions going broke. Any one of these could trigger new events that could lead to societal destruction on a massive and horrendous scale. Many of us know this because, currently, we are remembering how the same dominoes fell 100 years ago.
Yes.

Not just World Wars I and II. There was the Korean War and the confrontation over Berlin, which escalated into World War III. The Cold War and the Cuban missile crisis of 1962 which led to a nuclear holocaust. The Vietnam War and associated protests around the world (including May 1968 in western Europe), which toppled Western civilization as we knew it. The oil crises of 1973 and 1979 which permanently ruined Western economies. The inflation of the 1970s and early 1980s, which was never brought under control.

A fourth (or was it fifth?) world war in the early 1990s, triggered by conflict in the Gulf. Living in a permanent state of fear and trembling, under the terrorist menace that gathered momentum after September 2011.

Yes, history shows that we are doomed.

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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by Flaccidsteele »

George is dead on. As I mentioned in the "Liquidity Crunch" thread, investors, without fail, always think that crashes and threats to the economy are "different this time". Always. That there's supposedly new and devastating ways that society will collapse and leave the financial system in ruin. Guess what. It's never "different this time". Capitalism always recovers. Always. You would think that we would have figured that out by now. ;)
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Re: DB Pension Plans, Old debate in Wealthy Boomer with ?

Post by parvus »

Flaccidsteele wrote:Capitalism always recovers. Always. You would think that we would have figured that out by now. ;)
Only from the American experience. What passes for capitalism in other places doesn't obey the same rules, nor cede to the same frauds, nor rely on the same legal & ethical culture, nor enrol individuals with the same motivations...
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