D: the student loan coverage can wait.
I should flesh out the state of the nation on pensions first.
Pre-subprime-mortgage-crisis, companies had what seemed superficially to be stable private pension plans.
I say superficially, because past changes in rules by a past government ensured this would not last.
Inevitably, some crisis or crash or bubble bursting would have brought us to where we are today.
Which is: government either throwing many private pensioners to the wolves. Or bailing them out.
Making private pensions look a lot like.... public pensions.
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http://www.theglobeandmail.com/report-on-business/retirement/retirement-dreams-under-siege/article1327536/
Pensions: What you need to know
84% of public service workers have pensions.
78% of these plans are gold plated defined benefit pensions
25% of private sector workers have a pension plan
16% of these plans are gold plated defined benefit pensions
11 million workers, or 60 per cent, of Canada’s workers have no pension at all
8 million or 45 per cent, have no pensions or registered retirement savings plans (RRSPs)
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D: what does this all mean?
Well "gold plated" turns out to be a term used due to an earlier government policy.
It was pushed for by companies to free up funds.
Jacquie McNish does us no service by usually using such morally-evaluative, emotionally-laden terms without defining them, or placing them in context. Jackqie, you wrote a hack piece.
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At first, Premier Dalton McGuinty said Ontario had no plan to help GM top up its pension plan, which lacked sufficient money to cover all its obligations. He said putting money into GM's plan wouldn't be fair to other Ontarians.
But after the subject became a key issue in the negotiations, McGuinty changed his mind. This week, McGuinty acknowledged that some of Ontario's $3.5-billion contribution to the company could go toward the pension plan.
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D: how did things get so bad? And what is the distinction between tax-revenue based public pensions and private pensions?
Not much, apparently.
Everybody gets a pension, courtesy of the government, no matter what, apparently.
Why? Easy. Boomers are almost retired. They won't be picking up the tab.
You will.
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As the retirement dream fades, policymakers seem unwilling to tell Canadians they have not saved enough to retire.
“We have overestimated our capacity to protect the needs of retirees,” says Harry Arthurs, former head of an Ontario commission that identified numerous flaws in the province’s pension regime.
“We now know there is no such thing as a pension or retirement promise,” Mr. Arthurs says. “There is no certainty.”
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D: funny. That is the exact opposite of the truth. Generationally speaking, at least. For the Boomers.
Everybody who is a Boomer gets to win. Merry Christmas, ho ho ho.
But there is a price to pay. By somebody else, naturally.
If all the Boomers win.... everybody else LOSES. Gen XYZ.
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The Record: In a speech in Kitchener recently, author and economist Sherry Cooper suggested that baby boomers shouldn't retire at 65. She pointed out that the average life expectancy was only 62 when the government set the age of retirement at 65. "Retirement was never meant to be 30 years," she said.
http://news.therecord.com/article/547593
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D: originally, wasn't it age 70? How ironic. Now we are talking about moving it back to 70 again.
With life expectancy increasing, we may see retirements that last nearly as long as work careers!
Witness: School to 25, work 25-50, early retirement 50-75. OK, I had to finesse the timeline a bit. But you see what I mean.
That is a whole lot of Boomers who can expect to live to 75 or so retiring as early as 55.
God forbid is some miracle drugs suddenly increase life expectancy!
Here is my prediction: this will be phased in to the future, with warning, so as not to ruffle Boomer feathers.
"But we have only planned for the present retirement age -this upsets our plans", they'll cry.
Meaning.... the age of retirement will only be increased for Generation X, and following generations.
Do you see the pattern yet? Pay-go was predicted in the 1990s to become too expensive (code for: Boomers would need to pay their share, in part, before retiring, despite very low initial CPP pay-in the first half of their work lives).
It would get expensive by 2010- now - and the Boomers will be working in significant numbers for another 10-20 years.
Ergo, any spike in the pension pay-in needed to be deferred until 2020-30. The system allows for a .2% increase/year.
If at 2020 this increase begins, only the quasi-Gen X late Boomers will get clipped.
Here is my prediction. In 2020, despite seeing the same numbers and trends as 2010, the Boomers will suddenly 'discover' that the finances are not in place. In 2020 until 2030, the .2%/yr. rule will increase CPP pay-in from. c.10% to 12%. And so on. Until the Generation Z workers retire with an almost 20% CPP rate at the end of their work lives. Only to find out there is nothing left. In this respect, after the Boomers, we may well see a conflict between gens X and Z, with Y waffling in the middle.
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Under provincial legislation, the Ontario government has responsibility for ensuring the viability of GM's pension plan in Canada. Mr. McGuinty said yesterday the province is considering helping the company restructure the pension funds.
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D: ummm.. why?!
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The solvency deficiency - or shortfall in the funds if the company were to fail - was $4.5-billion in November, 2007.
Pension experts said yesterday that one solution could be similar to the action Ontario took earlier this decade when Algoma Steel Inc. made its second trek through creditor protection. In that case, the province took over financing the pensions of Algoma retirees, through the Ontario Pension Benefits Guarantee Fund, an insurance fund to which employers contribute, but which is now in deficit.
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$$$ . !!!.
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http://www.thepolitic.com/archives/2009/04/23/mcguinty-refuses-pension-bailout-for-gm/
McGuinty refuses pension bailout for GM
April 23, 2009 · By Charles Anthony
This is one of the few times that McGuinty actually makes a worthwhile decision, in my opinion.
Given that Ontario has already given billions in aid to domestic automakers over the past few years, using taxpayer money to guarantee auto worker pensions when 65 per cent of Ontario residents have no pension plan at all would be a tough sell, McGuinty told reporters.
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D: it is now too late to just say no. Now is time for the slippery slope.
Apparently the solution is to cover everyone!!! Let's use the credit card to have a party! Everyone's invited, woo hoo. How will we pay it off? Don't worry about it - have a beer!
Wonderful.
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http://www.uniontech.com/Archive/PostonWEB/PensionReform%20No.4.htm
The Rules as They Stand
Under the current rules, when all the assets of your former employer have been devoured by secured creditors, and your pension fund only covers 60% of its obligations, each former employee and former member of the plan gets 60% of their entitlement. In Ontario, when the resulting pension is less than $1,000 per month, it would be topped up by a little-known public insurance enterprise called the “Pension Benefits Guarantee Fund” – operated by the Province of Ontario, and funded by premiums paid by the likes of General Motors – employers with pension plans which are not fully funded.
It appears that the level of premiums paid was set way to low. On March 31, 2008, the PBGF reported a deficit of $102 million. The deficit in General Motors (Canada) pension funds exceeds $5 billion. Any new claims on the Guarantee Fund will inevitably turn into a liability for the taxpayers of Ontario...
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http://www.bnn.ca/news/4929.html
In Canada, the automaker is in compliance with all legal requirements and has a smaller shortfall when the pension funds are measured on a going-concern basis, which essentially amounts to pay-as-you-go.
GM is the only company in Ontario that is permitted to make annual payments into the province's Pension Benefits Guarantee Fund instead of being required to finance its pensions on a solvency basis.
GM became eligible to do that in the early 1990s when the Canadian units of the Detroit Three and steel makers Algoma Steel Inc. and Stelco Inc. were granted relief from onerous pension payments in part because the government agreed they were too big to fail.
A senior Ontario government official said the province is aware of GM's pension shortfall and it will be taken into account in negotiations over providing assistance to the auto industry. The government has not yet seen the automaker's books.
"The ramifications are enormous," the official said.
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D: "Because they (GM et al) were too big to fail"!
Oh, the laughter! The bitter tears...
It gets better. The other 2 companies are .... wait for it - Stelco and Algoma!
Who are these guys who passed this! Can we play pinata?
Don't worry, Boomers. Any government deficits won't be paid off in the next ten years of gradual recovery.
A book called "Unnecessary Debt" talks about this. The problem with running deficits during a recession is not the debt per se that results. The problem is a lack of discipline once times are good again. The result can be a gov't debt level that shows an 'escalator effect'. I.e. it goes up, levels out, goes up again - but never gets reduced.
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I'll take a look at consolidated gov't debt another day. I"ve looked it up before, and it is fairly involved.
It becomes even more complex when both unsecured future entitlements, and neglected public infrastructure gets factored in.
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