I agree to Idea Limit executives pay in companies with underfunded pensions
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I disagree to Idea Limit executives pay in companies with underfunded pensions

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Limit executives pay in companies with underfunded pensions

The Ontario Pension Benefits Act allows companies to pay executive bonuses and dividends even if the pension is underfunded. Given a choice of bonuses for themselves or a fully funded pension how do you think the decision would go?

The regulations should be changed to significantly limit or eliminate executive bonuses and dividends until the pension plan is fully funded.

Mentioned below, but if you disagree with this idea please post a comment. Why do you disagree and what alternate would you propose? I will answer.

Submitted by 1 year ago

Comments (15)

  1. The thrust of this is right.....but there are protocols for addressing unfunded liabilities. And as long as companies are meeting those requirements, there should be no need for special efforts as you have outlined.

    The restrictions on bonuses has some appeal.....because too often bonuses are given together with a retirement incentive; the employee leaves; and starts drawing a pension without further attention to the unfunded liability. I'm not sure how to address that but it is food for thought.

    1 year ago
    1 Agreed
    0 Disagreed
    1. This idea should be separated into two ideas: 1, make unfunded pensions illegal- because that will help reduce pension frauds where company's put all their profits into dividends and ignore the pension fund, and 2, the cap on executive pay then becomes moot or ideological.

      1 year ago
      1 Agreed
      1 Disagreed
  2. mike.cnda Idea Submitter

    There are protocols, unfortunately they are ineffective. FSCO is more than willing to make changes to let companies off the hook. What does meeting the requirements mean when FSCO changes them when they aren't met?

    1 year ago
    4 Agreed
    0 Disagreed
  3. Companies need more incentives to fully fund their pensions. Status quo is not good enough. Just see statistics on how many pensions are underfunded. Restricting bonuses until funded is 100% would be a great incentive.

    1 year ago
    7 Agreed
    2 Disagreed
    1. I think it's just a bit too extreme. Funding is calculated on a rolling five year basis (I think) in order to not have huge swings when interest rates change rapidly. For example, most pension funds will be considerably better off at the end of this year than the end of 2012 because of the approximate 40% increase in bond rates.....which positively impacts the future value of the fund.

      I am more concerned with actions taken which actually impact the value of the fund to the detriment of plan beneficiaries. Things such as benefit enhancements and special early retirement incentives.

      It seems to me that when market interest rates change dramatically, there should be an action plan whereby all plan partners (company/Union and/or all employees) jointly bear the burden of keeping the plan going in the right direction. To place an inordinate burden on one party (i.e. the Company; or bonus recipents; or the retirees; or the workers) doesn't seem right. When something goes awry, correction does not have to happen immediately....the rolling five-year valuation (or similar) should be the guide. But it should not be ignored with everyone crossing their fingers and waiting for somebody to fix it.

      I just read a Globe article about a 3rd type of benefit - not a defined benefit; and not a defined contribution; but rather a targetted benefit. The UBC has it and both parties have responsibility for balancing the books, one way or the other.

      1 year ago
      1 Agreed
      0 Disagreed
  4. mike.cnda Idea Submitter

    And if the company chooses note to fund the pension? What is the incentive to ensure full funding? What is the penalty for not funding it?

    Unfortunately little to no incentive, little to no penalty. Time to change that.

    1 year ago
    5 Agreed
    1 Disagreed
  5. Common sense, If you can't pay pension fund ,how can you pay executives that got the company in this postion

    1 year ago
    5 Agreed
    1 Disagreed
  6. Come on! This should be a no-brainer!

    Executives: bring the pension fund to sustainability before bonuses and dividends are earned: watch how fast that happens.

    1 year ago
    5 Agreed
    1 Disagreed
  7. This is a dumb idea. Meddling in the free market will only discourage private enterprise and force them to go elsewhere.

    1 year ago
    1 Agreed
    6 Disagreed
    1. Then PLEASE go some where else. the last thing we need are more companies with executrodes stripping pensions to enrich themselves. That is theft which unless your competition is the mafia,tong,or yakuza THAT "free market" we can do with out

      1 year ago
      4 Agreed
      0 Disagreed
  8. mike.cnda Idea Submitter

    Keep in mind, well managed companies meeting their pension obligations would not be impacted.

    1 year ago
    4 Agreed
    0 Disagreed
  9. mike.cnda Idea Submitter

    Hey folks,

    If you vote disagree please leave a comment. What would you suggest as an alternative, why you believe we shouldn't support this, ....? The debate offered here is a great opportunity.

    Of course if you agree post your perspectives as well

    1 year ago
    1 Agreed
    0 Disagreed
  10. There is a reasonable process in place which allows for contributions over a rolling 5-year (I think) time horizon. That's tHe rule...and it is just fine.

    1 year ago
    0 Agreed
    1 Disagreed
    1. mike.cnda Idea Submitter

      Thanks for the comment Gord.

      The challenge is while the Financial Services Commission of Ontario (FSCO)calculates the pension contributions companies have to make based on their specific plan, there are little to no tools to compel the companies to actually make the payments.

      This is exacerbated by three other problems. First, companies only have to report the standing of the plan every three years, and a lot can go wrong in three years. Second if the plan is underfunded, FSCO recently changed the rules to allow companies to choose to make up the shortfall over 10 years rather than the five. Third a pension funded to 85% is considered in the regulations to be fully funded.

      This idea would put in place a tool to incent companies to fully fund their pension plan.

      1 year ago
      3 Agreed
      0 Disagreed
  11. mike.cnda Idea Submitter

    @kuzell

    Thanks for your input, for some reason I can't reply to your comment.

    The Ontario Pension Benefit Act already requires companies to fully fund the pension. The problem is what happens when they don't. And companies are allowed to let funding drop to 85% before they are required to act on it; so they have a 15% cushion.

    Currently the bias seems to almost entirely favour the companies. If they fall behind give them five years to make it up They don't like five years? Give the companies ten years to make it up.

    The concern about forcing companies to make up shortfalls immediately is that it could force companies struggling financially over the edge, when a little time will allow them to recover and then make it up. There is also a concern that a market collapse, like 2008/2009 can negatively impact pension solvency that time will correct. Again forcing companies to take funds away from critical initiatives like modernization, new product development could hurt the company.

    That's why this idea is structured the way it is. Should a company fall behind on pension contributions the executives and shareholders are highly incented to make the pension whole. If they choose not to, the company doesn't suffer; it still has the funds to continue key initiatives.

    1 year ago
    2 Agreed
    0 Disagreed

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    1 year ago