Your Pension Plan At Work

We may end up owning an airport in New Zealand. I can't wait to retire and visit.

WELLINGTON (Reuters) - The Canadian state pension fund said on Wednesday it would make a partial all-cash offer for NZ's Auckland International Airport Ltd (AIA.NZ: Quote), a week after the company rejected a previous offer.

The Canada Pension Plan Investment Board said it would offer NZ$3.6555 a share for up to 40 percent of Auckland Airport shares valuing the company at around NZ$4.5 billion ($3.5 billion). CPPIB said Auckland Airport shareholders encouraged it to bid again, after the board rejected the previous proposal as too risky.

Shares in Auckland Airport, 23 percent owned by two local authorities, closed on Tuesday at NZ$2.91, having traded between NZ$2.06 and NZ$3.50 over the past 12 months.

($1=$1.29)

In response to a stinging snub from the board of New Zealand's largest airport, the Canada Pension Plan Investment Board (CPPIB) has fired back with a plan to take its partial takeover offer directly to shareholders.

After a months-long friendly process in which the Canadian pension fund manager was given ample access to Auckland International Airport Ltd.'s books, its board put out a surprising and sharply worded release last week quashing the CPPIB's bid.

Four of its five members voted against the offer for up to 49 per cent of the company. The revised all-cash offer is valued at $1.8-billion New Zealand ($1.3-billion Canadian) for 40 per cent.

Alongside its concern about the level of debt involved in the partial privatization, Auckland International's board also took an unusual poke at the expertise level of the $120.5-billion (Canadian) pension fund manager, which is considered by many to be one of the world's most sophisticated investors in infrastructure.

The CPPIB's second wind, however, has come from institutional investors including the airport's largest, the Auckland City Council.

The council owns a 12.75-per-cent stake and has encouraged the pension fund to continue on with its plan.

"We are really going down this route because shareholders have lobbied us to find a way to opine on the proposal," Mark Wiseman, CPPIB senior vice-president, private investments, said in an interview.

The airport's other large shareholders include the Manakau City Council, the city just south of Auckland in which the airport is located, along with infrastructure investors Macquarie Bank of Australia and New Zealand's Infratil Ltd.

Actually this is another case of public sector funds being used as a P3 Public-Public-Partnership. Privatization by another name,except all the investors are publicly owned institutions or pension funds. Ironic that.

Privatization of infrastructure is now being paid for by public funds. No capitalist is willing to invest in long term infrastructure. Not private equity companies or Hedge Funds. So while neo-cons promote the myth that private capital is willing to invest in public infrastructure the reality is that it is workers pension funds, public funds that are used to rescue the public sector and the commercial private sector investments in infrastructure.

Canadian pension plans, Australian bank to acquire Puget Energy

A multinational consortium lead by an arm of Australia's Macquarie Bank and including three Canadian public-sector pension plans is acquiring Puget Energy (NYSE:PSD) amid continued infrastructure investments by major Canadian pension funds seeking more lucrative returns to pay pensions.

The deal values the U.S. utility company at US$7.4 billion, including $3.2 billion in shareholder capital provided by the consortium, $2.6 billion in existing debt that will be assumed and $1.6 billion of newly issued debt.

In addition to Macquarie, the consortium includes the Toronto-based CPP Investment Board, British Columbia Investment Management Corp. and Alberta Investment Management.

"PSE is Washington's oldest and largest energy utility - it is a strong, stable company with a growing customer base in a market that has displayed consistent demand over time," Christopher Leslie, chief executive of Macquarie Infrastructure Partners, stated Friday.

TORONTO, ONTARIO--(Marketwire - Nov. 1, 2007) - RioCan Real Estate Investment Trust ("RioCan") (TSX:REI.UN) today announced its financial results for the three and nine months ended September 30, 2007.

Financial Highlights

RioCan reported net earnings for the quarter ended September 30, 2007 of $35,917,000 ($0.17 earnings per unit basic and diluted) as compared to net earnings of $41,763,000 ($0.21 per unit basic and diluted) for the three months ended September 30, 2006. For the nine months ended September 30, 2007, RioCan reported a net loss of $32,790,000 ($0.16 loss per unit basic and diluted) as compared to net earnings of $120,377,000 ($0.61 per unit basic and diluted) for the comparable period in 2006.

For the quarter ended September 30, 2007, rental revenue was $160,559,000 as compared to $145,339,000 for the three months ended September 30, 2006. Rental revenue for the nine months ended September 30, 2007 was $483,824,000 versus $429,291,000 for the comparable period in 2006.

FFO for the quarter ended September 30, 2007 was $76,029,000 ($0.36 per unit) as compared to $72,533,000 ($0.36 per unit) for the three months ended September 30, 2006. For the nine months ended September 30, 2007, FFO was $227,120,000 ($1.09 per unit) as compared to $209,440,000 ($1.06 per unit) for the nine months ended September 30, 2006.

RioCan's Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package for the three and nine months ended September 30, 2007 are available on RioCan's website at www.riocan.com.

FFO is a widely accepted supplemental measure of a Canadian real estate investment trust's performance and should not be construed as an alternative to net earnings or cash flow from operating activities determined in accordance with Canadian generally accepted accounting principles. RioCan's method of calculating FFO may differ from certain other issuers' methods and accordingly may not be comparable to measures reported by other issuers.

Portfolio Stability

At September 30, 2007:

- Portfolio occupancy was 97.6%;

- 65.1% of rental revenue was derived from properties located in Canada's six high growth markets (including and surrounding Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver);

- 82.6% of annualized rental revenue was derived from, and 83.1% of space was leased to, national and anchor tenants;

- Approximately 49.7% of annualized rental revenue was derived from its 25 largest tenants; and

- No individual tenant comprised more than 5.7% of annualized rental revenue.

Development Activity

With over a billion dollars at cost of ongoing developments, project activities remained strong throughout the third quarter as RioCan continues to focus on its development program. At the end of the third quarter, approximately 8 million square feet was under development, of which RioCan's ownership interest was approximately 3.4 million square feet. Third quarter highlights include:

- Oakville, Ontario - RioCan Centre Burloak, located at the intersection of Burloak Drive and Queen Elizabeth Way, is a 552,000 square foot new format retail centre anchored by Home Depot (retailer owned), SilverCity Oakville Cinemas, Longo's and Home Outfitters. This joint venture with the Canada Pension Plan ("CPP") Investment Board is 100% leased with approximately 92% to be occupied by national and regional retailers.

Construction is well underway and store openings are now being phased-in. A number of retailers have recently opened for business including Home Depot, Nike, Sony and Tommy Hilfiger. Additional retailers opening by the end of 2007 include SilverCity Oakville Cinemas, Suzy Shier, Guess, La Vie En Rose, Reitmans, Le Chateau, Urban Barn, Benix & Co., Bowring and many more. Other retailers such as Longo's, Home Outfitters, Urban Planet, Kitchen Stuff Plus, Structube, Solutions, Kelsey's, Montana's and Swiss Chalet will be opening in 2008.



- Edmonton, Alberta - Construction is ongoing at RioCan Meadows, another development joint venture with CPP Investment Board. Upon completion, this 502,000 square foot new format retail centre will be anchored by a Real Canadian Superstore (retailer owned) and Home Depot. Some retailers that recently opened for business include Winners, Dollarama, TD Canada Trust and Wok Box. Additional retailers opening later this year and in 2008 include Petsmart, Reitmans, Laura, Scotia Bank and Swiss Chalet.

- Calgary, Alberta - Also moving towards completion is the construction of RioCan Beacon Hill, a 788,000 square foot new format retail centre featuring shadow anchors Costco and Home Depot, both of whom are open for business, as well as Canadian Tire and Shoppers Drug Mart, both of which are expected to open in spring 2008. This joint venture with Trinity Development Group Inc. and CPP Investment Board boasts a number of national retailers, many of which are already open for business, including Winners, HomeSense, Royal Bank, Linens 'N Things, Golf Town, Michaels, The Shoe Company, Mark's Work Wearhouse, LaSenza, Thyme Maternity and Sport Chek. Additional retailers such as EB Games, Telus and Bell Mobility are anticipated to open later this year.

However what remains lacking is shareholder control of our pension funds. Without that we have no checks and balances on how our funds are being used, for instance if jobs are cut at the airport which are not in our interests or those of the workers affected.

Or in the case of affordable housing our pension funds are being used for commercial real estate investments instead of creating affordable housing in overheated markets.

While institutional funds, as our public pension funds are called in the investment industry, cry for more control over the boardrooms of the companies they invest in, we the owners/shareholders of these funds have no say in their boardrooms.

This is an issue the labour movement and civil society needs to address soon.

Canada says G7 to discuss state investment funds

Group of Seven finance ministers will discuss the need for more transparency by state-backed investment funds in a meeting on Friday and will likely mention the issue in their final statement, a Canadian government official said on Tuesday.

Ministers from the world's richest nations will gather in Washington on Friday to discuss the global economic outlook following this summer's credit crunch as well as possible regulatory changes for financial market players.

But sovereign wealth funds are also high on the agenda and will be the subject of an "outreach session" with non-G7 members Friday evening, said the official, who declined to be named.

Although they are not new, these funds have grown in number and size in recent years as the central banks of oil-rich Middle Eastern countries and countries such as China, which have huge reserves, invest in riskier assets in search of higher returns.

The main concern in Canada and other countries is that not enough is known about the huge capital flows from these funds, which can create imbalances in the global financial system. The funds need to be guided by clearly stated market-based principles to assure the countries hosting their investments that they are not motivated by anything other than economics, the official said.

At a special meeting that will also include China, Korea, Kuwait, Norway, Russia, Saudi Arabia, Singapore and the United Arab Emirates, Canada will hold up its Canada Pension Plan Investment Board as a model of accountability that could be adopted by state-owned investment funds. Norway's state fund is another model.

The CPP Investment Board is responsible for investing pooled pension assets worth C$120.5 billion and operates at arm's length from the government, with an independent board of directors. It undergoes external audits every year and tri-annual reviews by government authorities.

It is required also to hold public meetings periodically and to disclose its investment performance on its Web site.

Charge higher CPP premiums to firms without pension plans

The National Union of Public and General Employees (NUPGE) is launching a campaign to change Canada Pension Plan rules, requiring employers without workplace pension plans to pay higher Canada Pension Plan (CPP) premiums.

The extra money would be used to pay higher CPP benefits at retirement to workers who do not have a workplace pension plan.

NUPGE outlined the proposal at a recent conference attended by more than 300 union representatives and leading pension policy experts. The event was arranged by the Canadian Labour Congress (CLC), which brings together affiliated unions with a combined membership of more than three million members.

NUPGE is one of Canada's largest unions, representing 340,000 public and private sector workers across the country. Collectively, the NUPGE members participate in pension funds with combined assets of more than $100 billion.

The union recently released a research report identifying an alarming decline in pension coverage in Canada. The report revealed that the percentage of the Canadian workers covered by a pension plan declined from 46% in 1991 to 38.5% in 2005.

Employers lack incentives to provide pensions

Larry Brown, NUPGE's national secretary-treasurer, says Canada now provides few incentives for employers to create pension plans, despite the obvious social and economic benefits of doing so for workers and for society in general. In fact, disincentives exist to discourage employers from setting up their own plans, he said.

Brown says employers with pension plans now pay exactly the same CPP premiums as those without plans. At the same time, they assume legitimate administrative costs and requirements set out in pension legislation, including funding obligations and reporting and actuarial evaluations, he said.

“Employers have a moral obligation to their employees to provide decent pensions, but our system does very little to encourage this behavior. Instead, it subjects employers who provide pensions to necessary but often complex legislative requirements,” Brown notes.

"Why should an employer assuming the burdens and obligations of providing a pension plan pay the same CPP premiums as employers who do not?" he asks.

“We don’t think that makes sense and we’re launching a campaign that calls for an extra payment to the CPP from those employers that don’t offer a workplace pension plan,” he says.

"We are saying that employees should receive improved CPP benefit coverage during any years they work for employers without a workplace plan, and those benefits should be financed by additional CPP premiums collected from employers who do not offer pension plans.”

Brown says this would create an incentive for employers to provide pension plans. "They would pay for a workplace pension plan, or pay higher CPP premiums. Either way, they would be required to meet their moral obligations to their employees”, he said.

SEE:

Vencap

AIM High

P3 Myth Busting

Infrastructure Collapse

Fire Sale

Dumb and Dumber

Public Pensions Fund Private Partnerships

Golden Parachutes

Your Pension Dollars At Work

P3= Public Pension Partnerships

Find blog posts, photos, events and more off-site about:
Alberta, Heritage Trust Fund, LAPP, Alberta Investment Management Corporation, Canada, Pensions, P3, public-private-partnerships, OMERS, CPP, Ontario-Teachers-Fund, OTF, Canada, investment, infrastructure, VenCap, shareholders, economics,

Tokenism

The Harper Government does this;

Ottawa hopes to make Aung San Suu Kyi an honorary Canadian citizen

Instead of doing this;

NDP calls for review of Canadian Pension Plan investments in Burma

And increasing the number of Burmese refugees we accept into Canada.

There are currently 140,000 Karen refugees from Myanmar living in nine border camps in Thailand, and many of them have been there for up to 20 years.

The Canadian government has pledged to resettle roughly 2,000 of the Karen refugees in this country, and the Grimsby church’s sponsorship is part of that initiative.

In fact making Aung San Suu Kyi an honorary Canadian citizen will not change what is happening in Burma. Nor give Canada any sway over the Burmese military junta.

There was never any chance that the monk-led "Saffron Revolution" in Burma in the last six weeks would be successful.

The notion of the junta collapsing and fleeing in the face of the moral armour of the monks and the National League for Democracy led by Aung San Suu Kyi is fanciful nonsense.

The generals have ruled Burma since 1962 -- two generations -- and, as they have shown in 1988 and in the last few weeks, they will not give up their golden goose without inflicting extreme violence on their enemies.

And considering how badly Foreign Affairs has bungled the cases of actual Canadians held as political prisoners well I hope she isn't expecting much.

Meanwhile these Canadian Citizens want to know why their government aided and abetted their imprisonment and torture. But they don't get to find out cause Harper has approved a secret Star Chamber review of their cases.

And this Canadian citizen remains incarcerated illegally at Gitmo facing a Star Chamber trial and the Harper government has done nothing about it.


SEE:

Canada's Not So White Knight In Burma

Burma Watch

Blogs Left and Right Unite

Blogging Burma

Myanmar Ghost Dance

No Reincarnation Without Permission

The Road Out of Mandalay

Find blog posts, photos, events and more off-site about:
saffron revolution Aung San Suu Kyi, Buddhist,, Myanmar, Burma,, resistance,, insurgency,
Harper, Throne Speech, Canada, CPP,

Gambling On Your Future

Here is another reason we need to democratize defined benefit pension plans, whether run by the government or through our employers. While these institutional funds talk about the need for shareholder democracy; they deny the same to us.

They are using their vast reserves of captial now to play the market place investing in risky enterprises like hedge funds and private equity funds.

Canada's three-largest pension fund managers, unable to meet the long-term needs of retirees with returns from stocks and bonds, plan to increase private-equity investments after spending about C$50 billion ($47 billion) buying companies, toll roads and gas pipelines.

The pension funds added C$31.7 billion to private equity holdings in their most recent fiscal year, almost double the amount of the previous 12 months. The retirement plans are buying riskier assets because they don't expect publicly traded securities to provide high enough returns to pay the more than C$1.56 trillion of benefits owed to retirees over the next 50 years, according to annual reports from the pension funds.

The ability of workers to control, or even to influence, the investment of their deferred wages in pension funds — which are now by far the nation’s largest source of capital — is an old but recurring debate. Unions played a leading role in the creation and expansion of private pension trusts, particularly the traditional defined-benefit plans that are funded almost entirely by employer contributions.4 Yet because control over how pension assets would be invested was
never made a bargaining priority, today at least 90 percent of private sector pension fund assets are controlled exclusively by management.

Since the Second World War a number of factors have led to increased investment by institutional investors in public corporations. There has been the use of superannuation and pension schemes. There has been an increase in insurance linked investment products and other forms of indirect investment. Trustee investment rules have been relaxed, enabling trustees to invest in equities

The result is that in Australia, New Zealand, the USA and the UK more than 50% of all equities are held by institutional investors and the tendency is to increase. Add to this the traditional domination by institutions of the bond market and we have the beginning of the growth of a significant counterveiling power if the economic strength is harnessed to a common cause. Listed corporations are becoming the servants of global financial activity rather than its masters.

Peter Drucker argued that this led to a quiet revolution – ‘The Unseen Revolution...The US is the first truly Socialist country."This was simply reflecting what Berle in his later workings had identified and his research student Paul Harbrecht had called ‘The Paraproprietal Society’ – the evolution of a new form of property.

Until the late 1980s the tendency of the institutions was to be a sleeping giant. There were instances of discrete intervention but by and large the institutions voted with their feet and followed the Wall Street Walk – if in doubt, sell.

Institutions themselves came under attack and we see two developments. First, the involvement by them in promotion of improved corporate governance and secondly the use of specialist funds managers. The latter makes it more unlikely for institutions to become activists in particular companies although there have been exceptional cases where a group of funds managers have taken action.

Institutions are primarily focussed on profit and liquidity and have been attacked for short termism in their approach to companies. There is also a problem of lack of coincidence between the interests of institutions and other smaller shareholders in takeover situations. Often institutions collectively have strategically significant holdings.

Institutions sometimes encounter legal problems in increased shareholder activism.

It is sometimes argued that public sector pension funds are more likely to take a long term strategic view and certainly the US and the UK public sector funds have had a tendency at least to mouth the appropriate rhetoric.

See:

Public Pensions Fund Private Partnerships

AIM High

Golden Parachutes

Your Pension Dollars At Work

P3= Public Pension Partnerships

Find blog posts, photos, events and more off-site about:
Alberta, Heritage Trust Fund, LAPP, Alberta Investment Management Corporation, Canada, Pensions, P3, public-private-partnerships, OMERS, CPP, Ontario-Teachers-Fund, OTF, Canada, investment, infrastructure, VenCap, shareholders, economics,

Dodge Defends Defined Benefit Pension Plans

And why would Bank of Canada Governor David Dodge say such nice things about Defined Benefit Pension Plans? After years of the right wing attacking these plans in favour of defined contribution plans; RRSP's. Because they are the real source of capital investment for P3's

Because they generate more capital, faster, and thus can be used for investment purposes. In other words because OMERS, Ontario Teachers Pension Fund, CPP, the new Alberta AIM fund, all of them are now major contributors to the economy as investment funds, which are creating a new form of P3; public pension partnerships.

Once these public sector pension funds were freed from state restrictions in investing they have created a trillion dollar investment market. Further this has allowed the state to benefit by not paying its share. Thus giving the government of Canada more surpluses, along with their looting of EI.

While the private sector imitated the Government in failing to invest their required amount in their defined pension funds, leading them to funding crisis much as the Alberta Government faced a decade ago with its public sector pension funds. Which it attempted to privatize (put it under self governance) but once they discovered that allowing them to invest in the market made them profitable and they paid off their debt they gave that idea up. Today a decade later they finally discover what OMERS and the Ontario Teachers Fund have been so successful doing, becoming private venture capital funds, and created the new AIM Fund.

In the private sector we have seen the same Peter Pocklington style use of workers pension funds to bail out the corporation. Pocklington purchased Gainers in Edmonton to access not only the business capital but the unionized workers pension funds to bail out his other businesses, like the Oilers, in a barely legal ponzi scheme that saw him bankrupt both and leave the city in disgrace.

When pension fund bail outs have been successful in the private sector it has been because the company was Canadian, unionized, and formerly a crown corporation like Air Canada.

Where they have failed has been in the U.S. such as in the case of Delphi, where the unionized workers pension funds are looted when the company uses their failure to invest in them as an excuse to declare bankruptcy and hand over their pension responsibilities to the U.S. government in a perverse appeal to state capitalism to bail them out.

This is the reason that both the Canadian and American governments want workers to work longer, so as to have more liquidity in the CPP in Canada and Social Security in the U.S. Conservatives Want You To Work Longer

I am reproducing these articles because they are the most informative and because they will eventually disappear behind locked subscription walls.

And while Dodge says nice things about Defined Benefit Plans he also wants to deregulate them, including allowing employers to retain their surpluses, which shortchanges worker, something a former Liberal PM benefited from.

Making private pensions stronger

Dodge says defined-benefit plans way to go, with changes to improve them

By JULIAN BELTRAME The Canadian Press

OTTAWA— Bank of Canada governor David Dodge is calling for changes to Canada’s private pension plan system, and a swing back to defined-benefit plans, to ensure it produces the best results for employees and the economy.

Private plans have been under pressure in Canada for several years, with many company pensions running huge shortfalls because of future liabilities.

A survey of chief financial officers, released Thursday by the Conference Board of Canada, found that two-thirds believe there is still a pension crisis in Canada. But the number who feel the crisis will be long-lasting has declined to 48 per cent from 61 per cent last year, the survey of 141 corporate executives found.

In a speech Thursday at a Toronto pension summit, Dodge proposed six changes he said would give employers more incentives to offer workers the most desirable form of pension — those that pay predictable, defined benefits on retirement.

Private pensions are important both to the employee who receives them and the employer hoping to attract and retain the best available staff, he said. They are also important for the economy as a whole, he added.

"As a central banker, I know that a sound pension system is important from the perspective of economic and financial market efficiency," Dodge said.

But while he mostly praised Canada’s legal and regulatory framework governing private pensions, Dodge said there are several shortcomings that should be addressed to strengthen the system.

Those shortcomings are increasing the risks to employees and preventing the plans from functioning at maximum capacity, he said.

As a result, Dodge said employers "have been scaling back or restricting new entries into these types of plans, largely because they do not have the right incentives to maintain and operate defined-benefit plans."

Many have been converting to defined-contribution plans instead as they are usually easier to budget for.

One drawback to the current system is that when pension plans run a surplus, federal and provincial laws increasingly have given employees the right to those surpluses even though it is the employer that bears the risk of default.

He added that tax regulations perversely discourage pension managers from building a surplus above 10 per cent, even though such surpluses are desirable and useful in offsetting periods of deficits.

Dodge said many employees miss out on the opportunity to be protected by private pension plans because they work for companies that are too small to afford them.

"But risks can be mitigated by sponsors forming multi-employer plans, thus pooling risks across a number of plan sponsors," he argued.

"If structures such as large multi-employer pension plans could be created, this would help them to pool both costs and risks, making it easier for smaller employers to sponsor defined-benefit plans."

He noted that municipalities in Ontario have done exactly that in forming OMERS, the Ontario Municipal Employees Retirement System, so there should be away to explore that avenue for private-sector employers.

Among other concerns noted by the central banker were increasing flexibility to deal with actuarial deficits and making sure accounting rules don’t introduce unnecessary volatility to employers’ balance sheets.

"Ultimately, Canada can have a better-managed system that is good for members, good for employers, good for the economy and good for Canadian society," he said.

Bank of Canada calls for private pension plan reforms

Governor Dodge wants clarity. Suggests giving plan sponsors more flexibility to cover pension fund shortfalls

ERIC BEAUCHESNE,

CanWest News Service

Published: Friday, May 11, 2007

Bank of Canada governor David Dodge is calling for widespread reforms to deal with the country's private pension fund crisis, including the elimination of tax penalties and other rules that discourage employers from building up pension fund surpluses, as well as a greater awareness among employees of the risks and costs of enriching their retirement benefits.

"First, we should reduce the disincentives for sponsors to run actuarial surpluses in good times that will offset actuarial deficits in other periods," Dodge told a pension conference in Toronto yesterday. "More clarity regarding legal ownership of surpluses is needed, so that the sponsor that owns the risks also owns the benefits from taking those risks."

Dodge focused on measures that would make defined benefit plans - seen as superior to defined contribution plans but which employers have been abandoning as too risky - more viable.

Generally, in defined benefit plans, employers guarantee employees a pre-set level of benefits, while in defined contribution plans the employees bear the risk as the level of their benefits is based on the investment returns the plan earns.

"An effective defined benefit pension system is a tremendous asset for individuals, for employers and for our society as a whole," Dodge said. "Putting these plans on a sustainable footing involves strengthening the legal, regulatory, accounting, actuarial and economic frameworks."

Dodge suggested that defined benefit fund surpluses should belong to employers because they face the risk of having to cover any shortfall, and that existing tax penalties on fund surpluses should be eased.

"Given the significance of our pension system, policymakers in Canada need to keep working on improving its operation," Dodge told the pension conference.

His comments follow reports that the worst of the recent pension crisis has eased, thanks to healthy returns in the stock market and extra payments by employers to cover pension fund shortfalls.

Dodge suggested giving plan sponsors more flexibility to cover pension fund shortfalls, and letting smaller companies pool costs and risks to form multi-employer defined benefit pension plans.

The governor also called for greater sharing between employers and employees of the costs to pension funds from increases in longevity, and that the costs and risks of any enriching of plan benefits be made clear to both corporate shareholders and workers.

"These changes would give sponsors the appropriate degree of flexibility needed to manage risk effectively," Dodge said. "Ultimately, Canada can have a better-managed pension system that is good for members, good for employers, good for the economy and good for Canadian society."

While Dodge noted that the benefits of pension plans to workers are obvious, he said they also are good for employers and society.

© The Gazette (Montreal) 2007

FULL TEXT-Speech by Bank of Canada Governor

TORONTO, May 10 (Reuters) - The following is the prepared text of a speech by Bank of Canada Governor David Dodge to be delivered on Thursday to the Conference Board of Canada's 2007 Pensions Summit.

A Sound Pension System - Handling Risk Appropriately Good afternoon. I'm happy to be here to talk about the importance of Canada's pension system. It goes without saying that a sound system of private pensions is important from the perspective of pensioners who rely on a given plan for their retirement income. For firms, a pension plan can help to attract and retain staff, and so the business community also counts on a sound pension system. And as a central banker, I know that a sound pension system is important from the perspective of economic and financial market efficiency. Given the significance of our pension system, policy-makers in Canada need to keep working on improving its operation. Ultimately, it is crucial for all Canadians that our pension system function as well as possible. But what is it that makes a system of private pensions function well, or not? As I see it, a key to answering this question is understanding how pension plans deal with risk, in all of its many forms. So today, I want to spend some time discussing private pensions and risk, and suggest what needs to be done to make sure that those who have to bear risk also have the right incentives to deal with it in the most appropriate manner. I will focus on who is best placed to bear risk, and on how risk management can be better supported. Risks and Challenges Let me start with a fundamental question: Why do people save for their old age? Essentially, people save during their working years so they can retire at some point and not suffer a precipitous drop in income and living standards. Economists might put it somewhat less elegantly, saying that people save in order to smooth their lifetime consumption. In the absence of any kind of pension system, individuals, businesses, and society as a whole would all face a number of challenges and risks. I want to spend a few minutes talking about the challenges and risks from these three perspectives, beginning with individuals. First, individuals without a pension plan would have their personal savings as their only source of retirement income, aside from income from the publicly funded Canada Pension Plan/Quebec Pension Plan and the Old Age Security/Guaranteed Income Supplement. And so, individuals would naturally be exceedingly cautious with their investments, particularly as they approached retirement age. In short, individuals without pensions would likely be too risk-averse with their savings to generate a sufficient rate of investment return. Second, individuals can recognize that they lack the expertise to handle their investments in the most effective way, and so will try to acquire this expertise. This could come by way of an investment adviser, or by investing their savings in managed, diversified retail investment vehicles such as mutual funds. The challenge posed by this approach is that it can be costly, since individuals outside a pension plan have to purchase investment advice and ongoing funds management retail, not wholesale. Third, individuals without a pension plan face market risk in a couple of ways. Market conditions could be such that at the time of retirement, the value of their assets could be abnormally low. Or interest rates could be abnormally low at the time of retirement. In either case, the person would need to spend a much greater amount to purchase an annuity or other guaranteed stream of income compared with a period when market conditions were more favourable. The fourth point is related to the third. Sellers of annuities have to deal with the risk that those individuals who expect to live much longer than actuarial tables would suggest are the ones who buy annuities. To deal with this adverse selection problem, sellers compensate for the risk by charging significantly more for the annuity. In other words, the cost of an annuity is much greater for an individual than it is for members of a group. Both of these last two points demonstrate that without a pension system, individuals would need significantly higher levels of savings to ensure adequate funding for their retirement. And all of these points I raised demonstrate that pensions generate enormous benefits by making it much simpler for individuals to successfully save for retirement. But while the benefits of pension plans are obvious for individuals, let's not lose sight of the benefits for businesses and for society as a whole. From the perspective of business, pension plans are typically thought of as a recruitment and retention tool. But historically, pensions were also the way that good employers helped workers to save so that they could avoid penury in old age. And with a pension plan, older workers had the ability to retire, and thus did not need to keep working well beyond the point of their greatest productivity. As for society as a whole, pensions provide a couple of important benefits. First, no society wants to see large numbers of its senior citizens relying entirely on government transfers, although there is fairly universal agreement across most countries that it is desirable to have some degree of public income support for people in their old age. Beyond that, however, a well-functioning pension system is an important source of the long-term risk capital that is essential to finance growth. Mitigating Risks: Defined-Contribution Plans Most of the challenges and risks I've mentioned can be mitigated, to a greater or lesser extent, through the pooling effect that a pension plan provides. Of course, different kinds of pension plans deal with risks in different ways. First, let me briefly discuss defined-contribution plans and the way they deal with risks. A defined-contribution plan mitigates, at least partially, many of the challenges and risks I mentioned for individuals. For example, the costs of funds management and investment advice are pooled. Further, pooling helps to mitigate the risk that individuals will not have saved enough to purchase an appropriate annuity.

Most execs see a pension crisis

Fewer fear it will be long lasting

ERIC BEAUCHESNE, CanWest News Service

Published: Thursday, May 10, 2007

Nearly two-thirds of senior executives believe Canada still has a corporate pension funding crisis but a lot fewer fear it will be long-lasting, according to a survey to be released Thursday at a pension conference in Toronto.

The percentage of chief financial officers who feel the pension crisis will be long-lasting has slipped below half to 48 per cent this year from 61 per cent last year, and the proportion of senior human resource executives who see it as long-lasting has fallen to 40 per cent from 67 per cent, the survey found.

The results are being released at a Conference Board of Canada pensions summit in Toronto at which Bank of Canada governor David Dodge will give his perspective of how to manage pension risks.

"Compared to one year ago, the sense of crisis appears to be abating, but chief financial officers are still concerned about both the volatility and the current level of pension expense," said Gilles Rheaume, the board's vice-president public policy. "In an environment of labour shortages, pensions ... are considered a very valuable recruitment and retention tool." The lower level of concern likely reflects better investment returns and shrinking funding deficits, added Ian Markham, a pension specialist with Watson Wyatt, which conducted the survey of 141 employers.

However, he noted that employers are still pursuing reforms in both pension fund investment strategies and the design of pension plans.

Forty-one per cent of employers with a defined benefit plan, seen as the most attractive plan for attracting and retaining employees, indicated that they had made some reforms over the last two years or were planning to do so over the coming year.

Among private sector employers, the most common reform has been to convert to a defined contribution plan, under which the level of pension payments is determined by investment returns, from a defined benefit plan, under which an employer must make up any shortfall in a fund to cover the cost of paying an agreed upon level of benefits.

That's despite the fact that employers strongly agree that a defined benefit plan is more attractive when trying to recruit or keep employees, the report noted.

Firms jettison defined-benefit pension plans

Shift means many will work longer

May 10, 2007 04:30 AM

James Daw

Traditional pensions continue to slip from workers' grasps.

A third of the 45 public companies polled in a new survey will soon have stripped benefit guarantees out of pension entitlements that new and existing employees will earn in future.

In the face of a new era of low investment returns and rising obligations, more pension providers are aiming to limit contributions to a fixed percentage of pay.

Affected employees could face having to work longer – if their health and skills allow – or deal with a lower standard of living in retirement, a senior actuary warns.

The trend that began in the early 1990s is gaining momentum, just as an Ontario commission searches for a survival and expansion plan for pension plans that have defined benefits.

Ian Markham, an adviser to the Ontario Expert Commission on Pensions, says the number of workers who have lost pensions with defined benefits for each year of service may be more than official figures recognize.

Statistics Canada estimates about 83 per cent of the two million pension-plan members in Ontario still have defined benefits.

Most of the members are in the public sector.

But the agency has a great deal of difficulty dealing with private-sector employers that will pay benefits based on service up to a certain year, but in future will make a fixed level of contributions for each dollar earned.

"How do we categorize that?" asks Markham.

Results of the new survey, by the Conference Board of Canada and Watson Wyatt Worldwide, where Markham is a consulting actuary, are to be presented today at a pensions summit in Toronto.

An early release was provided to the Toronto Star.

Key findings are that about 18 per cent of the 45 public companies polled across Canada have swung in the past two years to defined-contribution plans for future service.

Another 15 per cent said they will follow in the next year, while 5 per cent have or will get rid of defined benefits entirely.

Most said they were moving away from guaranteeing a certain benefit based on years of work and salary in order to avoid fluctuations in contribution requirements and to cut costs.

More than 60 per cent of public and private companies said they are making extra payments to eliminate funding shortfalls, which are anotther type of risk for employees if their employer fails.

Few of those employers (16 per cent) pay more into their plans than the minimum legal requirement.

Two-thirds of respondents think pension funding is in crisis, but the percentage who think it will last for many years has fallen to 48 per cent from 61 in 2006.

Many companies see the move away from defined benefits as a financial necessity, but most employers with the cheaper defined-contribution plans worry retirement benefits won't be adequate.

These lesser plans may thus make it difficult to recruit and retain top talent, or to ease out unproductive workers. The national unemployment rate is down to about 6.1 per cent, and a growing number of baby boomers will soon reach the age of retirement.

Public-sector plans are moving to increase both employee and employer contributions, while private-sector companies are increasingly shifting risk to employees.

Markham said that a 30-year-old worker five years ago might earn a pension equal to 54 per cent of pay by age 65 if he or she and an employer each contributed 5 per cent of pay to a defined-contribution pension plan.

But the outlook for returns on all forms of investment is now significantly lower because interest rates on long-term bonds are low all around the world. On the flip side, the cost of life annuities is much higher.

So, the same combined level of contributions (10 per cent of pay) might replace only 38 per cent of pay at age 65 (excluding government benefits).

To get back to a 54 per cent rate of replacement, contributions might have to rise more than 40 per cent, or the person would have to work years longer.

Markham said he doubts many employers, let alone employees, realize the impact of lower interest rates on prospects for retirement. Other research suggests most employees are ill-equipped to invest their retirement savings, and the available investment options are more costly and less well managed than defined pension plans.

The commission on pensions in Ontario, headed by labour-law expert Harry Arthurs, has until next summer to report.

A discussion paper on the Web at pensionreview.on.ca asks for suggestions about a number of questions, including how to make defined-benefit plans less costly, and surplus funds or contingency reserves less a bone of contention.

Director of research Robert Brown said at a pension conference yesterday that 20 research papers have been commissioned. Public hearings are to be held in six cities, starting in Toronto Oct. 15, the deadline for making written submissions.

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