# How to protect myself from my company pension plan



## emperor (Jul 24, 2011)

Is there any way to protect myself from my companies pension plan other than the obvious of quitting and getting a new job.

When I started working for this company I would pay nearly 20K into the pension a year. For every 20K payed my monthly amount at 65 would go up almost 200 dollars . There was also an option to retire early at 55. My job is physically demanding so very few people can do it until they are 65. 

*Since then these things have happened*

- They got rid of the retirement at 55 option

- Now after you pay 20K into the pension your monthly goes up about 75-100, pretty much half the amount

- 3 dollars an hr was taken off our pay to help pay for the pension. Doesn't increase my pension, it just vanishes

- I've paid over 160K into the pension, they said if I died they would pay 120K to my family now they say if I die they only get 44K and I guess they keep the other 116K.

Plus on top of all this garbage I never get any contribution room for RRSP because of the pension so I can't even try to prop up my own retirement.

If someone knows a way I can protect myself from this pension please let me know.


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## AltaRed (Jun 8, 2009)

None of this makes much sense to me. Registered DB pension plans are regulated either federally or provincially with certain obligations. Which jurisdiction regulates your plan?

The plan, generally operated 'in trust' by the plan sponsor (employer), cannot retroactively change earned entitlements, but they can change future entitlements prospectively as they wish. Whatever you contributed under the old rules, e.g. early 55 option, remains in place, but they can change prospective rules. It is no different than an employer mandating a 10% pay cut prospectively.

Lump sum payments, i.e. commuted values, change with changes in actuarial interest rates used for discounting. Those lump sum numbers came down dramatically with the decline in interest rates. However, they should start going back up. If you don't understand this stuff, you might want to read a book such as The Pension Puzzle by Bruce Cohen and Brian Fitzgerald. Think the last edition was published about 10 years ago. Don't know about an update or a substitute.

To my knowledge, most employers do not have an 'opt out' provision for DB plans.

You can still save for your retirement in TFSAs and non-registered accounts. I had little ability to contribute to an RRSP either..... pretty much in the 1970's and 1980's only.


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## Beaver101 (Nov 14, 2011)

AltaRed said:


> None of this makes much sense to me. Registered DB pension plans are regulated either federally or provincially with certain obligations. Which jurisdiction regulates your plan?
> 
> The plan, generally operated 'in trust' by the plan sponsor (employer),* cannot retroactively change earned entitlements, but they can change future entitlements prospectively as they wish. Whatever you contributed under the old rules, e.g. early 55 option, remains in place, but they can change prospective rules.* It is no different than an employer mandating a 10% pay cut prospectively.


 ... this means "*Since then these things have happened.*" will only apply to new hires.

If the OP has been contributing that much ($20K per year), I'm guessing it is more like a DC plan than a DB plan in which case the OP has control over the investments which is contradicting this part:



> I've paid over 160K into the pension, they said if I died they would pay 120K to my family now they say if I die they only get 44K and I guess they keep the other 116K.


 ... how does the OP knows this? From a pension statement? (An annual statement should be issued under a DB plan by the plan administrator).




> Lump sum payments, i.e. commuted values, change with changes in actuarial interest rates used for discounting. *Those lump sum numbers came down dramatically with the decline in interest rates.* However, they should start going back up.


 ... false. It's the opposite as it's "discounting". The lower the interest rates, the higher the c.v. (present value).



> If you don't understand this stuff, you might want to read a book such as The Pension Puzzle by Bruce Cohen and Brian Fitzgerald. Think the last edition was published about 10 years ago. Don't know about an update or a substitute.


 ... good read.



> To my knowledge, most employers do not have an 'opt out' provision for DB plans.


 ... however, employees can choose not to participate. (This would somewhat be giving up free $ though).



> You can still save for your retirement in TFSAs and non-registered accounts.


 ... way to go or plain regular savings.



> I had little ability to contribute to an RRSP either..... pretty much in the 1970's and 1980's only.


 ... all due to the PA value. These days, the saying (especially amongst the millenials) goes "having a DB plan is like getting a gold-plated retirement".


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## AltaRed (Jun 8, 2009)

Beaver101 said:


> ... this means "*Since then these things have happened.*" will only apply to new hires.


Actually no. Any pension plan (beyond union contract provisions) can be modified prospectively for any portion earned prospectively. My DB pension had 3 distinct and separate "sub-plans" that made up the total amount I received for 27 years of service.

Each portion of service calculated differently as the company reduced the attractiveness of the DB plan over my career. One portion had a 2%/year service factor. Some years later, the company changed forward service to 1.6%/yr, and finally the discount for early retirement got more severe, i.e. full pension only at 62 yrs of age instead of age 60.

I think it is a DB plan because it has commuted values. A DC plan is only worth in absolute dollars what it is worth at any moment in the marketplace of bonds and equities, e.g. just like an RRSP. There is not much difference between the two.

Added: Beaver is right on discount rates. I was thinking of Future Value rather than Present Value.


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## emperor (Jul 24, 2011)

Thanks for the reply.

We are a fairly large organization so they actually have a website that calculates and shows you all this stuff in real time.

They used to have a system called the magic 90 which means you take your age, add in your years of service and if it equals 90 you qualify for full pension. So if you are 55 and worked and for them for 35 years you could retire at 55 with full pension and it scaled, so 80 you would loose a little etc. Now the rule is if you retire at 55 you only get 40% of your value. Years of service doesn't matter. People that were within 5 years of retiring got grandfathered in. Everyone else lost it.

The death option is also right on the website you click a button that says what happens if I was to die. and it gives you the amount. This time last year it was over 120K this year it's 40K. 

It has this little disclaimer underneath

_The Plan submitted an application to the Alberta pension regulator for: (i) an exemption from solvency funding; and (ii) approval to use going concern actuarial assumptions to calculate commuted values. The Plan’s application was approved by the Alberta pension regulator.

As a result, effective with payments on or after December 1, 2017, commuted value death benefits for Members whose last hour worked was in Alberta, Saskatchewan or British Columbia, are calculated using going concern assumptions and the Plan’s Funding Ratio to a maximum of 100%.The Plan's current Funding Ratio is 94.7%. Please note that upon the payment of a commuted value death benefit no further benefit is payable by the Plan.
_

So what I'm kind of hearing the only options you have is get out of the pension plan or quit the company. Other than that they have free reign to do what ever. They can garnished wages to top up the pension, they can reduce how much they pay out if you die, they can reduce how much you get paid out monthly no matter what you contributed and they can decide what % you deserve at what age.

If I opt out will they have to pay me back that 3 dollars an hour they stole from me for the last 4 years? And will the government give me back my RRSP contribution room? 

Thanks


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## AltaRed (Jun 8, 2009)

Many, if not all, non-civil service DB pension plans have taken away the 90 factor, or 85 factor (the most common one), etc. partly because it is a costly option disproportionately targeting very long service employees, and other than some remaining long term employees, most employees hired in the '90s and later no longer put in a full career with one employer. IOW, it is not an attractive part of any company's compensation plan for prospective employees....and benefits packages really are all about the total package that targets the main group of professionals. Most prospective employees now prefer salary and health plans, and not much else.

Pensions are now more generally calculated on "X% times years of service" discounted for age below 65 or 62 or whatever. That said, the pension regulator would (should) demand compensation be provided within the plan for those who contributed all those years up to 'the point of change' because obviously those who would have had the benefit of the 90 factor no longer will. There has to be some kind of formula for that. 

Pension legislation prevents any employer from 'stealing from you' based on past contributions so I am at a loss to respond to your comments. I am just not nearly knowledgeable enough on pensions to speculate on anything else. Certain individuals like Bruce Cohen himself often responds to posts like yours on FWF but don't know if you want to test those waters. Still, he cannot help much without specifics.


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## naysmitj (Sep 16, 2014)

Have you consulted either a lawyer or an accountant regarding your options?


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## GreatLaker (Mar 23, 2014)

I worked for a company that had a DB pension that was chronically underfunded. Not badly underfunded; somewhere in the 95% range. The company had to make solvency contributions, but management regularly talked about how the pension was fully funded on a going concern basis, but not on a solvency basis. I did not know that it was possible to apply for the change from solvency funding to going concern funding. Maybe that's something new, or varies by jurisdiction (province or federal).

You also have to carefully understand the pension rules vs. company policies. My employer's pension rules stated that pension members could retire with full pension at age 65 with 35 years service. If a member retired younger than age 65 the pension was reduced by 6% per year under age 65. The plan also stated that the company could grant permission for an early unreduced pension if a member's age plus years of service was equal to or greater than 85. The company's policy was to grant permission for early retirement if the member had 85 points. Then the policy was changed to not grant permission for early unreduced pension. They did not have to change the pension rules, just the policy. This sounds similar to what emperor described.

The rules vs. policy issue was something most people did not recognize, even after the decision was announced. Someone that started at age 20 and stayed with the company to age 55 could retire with a full unreduced pension. Suddenly they were looking at a 6% per year early retirement reduction, so retirement at age 55 meant receiving 40% of a full pension, not 100%. Ouch!

The company provided about 6 months notice of the change. A lot of people that were over age 55, myself included, left before the change went into effect. But pity the age 50 lifer that expected to retire in 5 years with full pension, then suddenly was looking at a 60% reduction at that age. The company was for sale, and that simple policy change caused a lot of people to retire early, and reduced future pension obligations and commuted value obligations substantially. It was clearly aimed at reducing the number of employees and pension costs to facilitate a sale.

Scrutinize the pension rules especially watching for weasel phrases like "may grant permission for early retirement".


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## OptsyEagle (Nov 29, 2009)

I can't really say what is normal and what has changed. 

One thought to keep in mind is, if you put $20,000 into your RRSP when you were 25, that $20,000 should pay a lot more monthly income to you in retirement then the $20,000 that is put into it when you are 50. So I doubt a pension plan has any way around this reality so at least put that one aside. I have no idea of the exact cost but the concept sounds normal to me.


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## Beaver101 (Nov 14, 2011)

naysmitj said:


> Have you consulted either a lawyer or an accountant regarding your options?


 ....? 

I have yet to see how an accountant or a lawyer can help with concerns or issues raised by an employee. Neither will advocate on your side as it is not the employee who sponsors (aka owns) the pension plan.


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## OhGreatGuru (May 24, 2009)

You could try to get a better explanation from your employer, but they are not a disinterested party. Or from your employee organization if you have one. Or as a last chance the pension regulator for your jurisdiction. But the fact the company has made these changes suggests the original plan was not actuarially sound, and the company had no choice but to make changes. You can ask if you have the alternative of pulling your (and their) money out into a LIRA; and perhaps changing to a DC plan. But if the plan is underfunded you may not be happy with what they are willing to offer. 

A lot of companies are moving away from DB plans to DC plans because of the pension liability. DB plans are usually predicated on the assumption that the employer's business and the future employee pool will not shrink. Too many private companies are finding they cannot rely on this assumption. More & more, DB plans are being restricted to government employees or 'public' services of some kind: the government can't go out of business; nor can schools or hospitals.


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## ian (Jun 18, 2016)

A funding ratio of 94.7 is not particularly bad. Funding ratios go up and down over time time investment returns etc. I was in a plan that routinely jumped around from 90 percent to 103 percent over the years both in terms of ongoing and windup funding ratios.


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## naysmitj (Sep 16, 2014)

Beaver101 said:


> ....?
> 
> I have yet to see how an accountant or a lawyer can help with concerns or issues raised by an employee. Neither will advocate on your side as it is not the employee who sponsors (aka owns) the pension plan.


Sorry if that was poor advise. I have often consulted with legal or accounting professionals regarding how a situation affects me directly and what options may be available to me. Guess it's not for everyone.


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## Beaver101 (Nov 14, 2011)

^ No problo as you were just trying to help. But pensions is an area of great "mystery", by experience.


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## AltaRed (Jun 8, 2009)

GreatLaker said:


> I worked for a company that had a DB pension that was chronically underfunded. Not badly underfunded; somewhere in the 95% range. The company had to make solvency contributions, but management regularly talked about how the pension was fully funded on a going concern basis, but not on a solvency basis. I did not know that it was possible to apply for the change from solvency funding to going concern funding. Maybe that's something new, or varies by jurisdiction (province or federal).
> 
> You also have to carefully understand the pension rules vs. company policies. My employer's pension rules stated that pension members could retire with full pension at age 65 with 35 years service. If a member retired younger than age 65 the pension was reduced by 6% per year under age 65. The plan also stated that the company could grant permission for an early unreduced pension if a member's age plus years of service was equal to or greater than 85. The company's policy was to grant permission for early retirement if the member had 85 points. Then the policy was changed to not grant permission for early unreduced pension. They did not have to change the pension rules, just the policy. This sounds similar to what emperor described.
> 
> ...


Very good post! It should really help clarify the potential situation Emporor likely has AND it also jogged my memory a bit on some of the policy vs rules stuff I remember in the plan I was in too. 

95% funding on a 'going concern' basis is not unusual because of varying investment returns as noted already, and should only be a concern if this is a chronic situation every year AND the company is on thin ice. With investment returns down this year, the pension plan statement for 2018 could show even a lower 'going concern' funding level. The bigger issue is 'solvency' funding if the company is on thin ice. Solvency basis will always be lower because it assumes an abrupt stop to company contributions to fund future obligations. I never had an issue with the solvency number in our corporate plan due to blue chip nature of my company and its high credit rating. 

Generally speaking, company sponsored DB pension plans have become a monster for both employer and employee. They are difficult to manage as an employer and leaves all sorts of vulnerabilities as an employee. They only now work in the public sector due to the government's bottomless ability to tap the taxpayer endlessly to fund them. Even then, there has to be a point in the not too distant future when a critical mass of taxpayers will say no more and start voting in governments which will cap these public sector plans. They are getting way out of hand as has happened in endless numbers of municipalities south of the border.


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## ian (Jun 18, 2016)

There is often a great deal of money at stake when it comes to company DB pensions. It is not unusual for commuted values to go from the mid six figures and into the seven figures when supplementary pensions are added in. For some, their pension value may in fact be their largest asset after a home. I certainly wrestled with mine, notwithstanding the brochures, etc from our HR dept.

I was somewhat taken aback by how cavalier some folks that I worked with were about their DB pension compared to other personal assets. They are not as straightforward or easy to understand as other investments but they are certainly as or more important. 

So kudos to emperor for trying to gain a better understanding of his/her plan and the numbers that pertain to his situation. In my experience it takes some effort and some patience.


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## Plugging Along (Jan 3, 2011)

OP: You need to check your company policies. Whether there is an opt out/in option or not is a company policy it is not legislated. It's considered part of your company benefits. In my company, there is no option, it is a condition of your employment. My previous company had a DB pension which was opted, but if you didn't opt in, then you got nothing (company contribution)

Also, keep in mind that the calculations of CV are quite complicated. The on-line calculators that you refer to are often just rough estimates. They are also based on many assumptions including the current interest rate (the high it goes the lower the pay out). I would be surprised if you calculator is the exact amount you get. Mine, says its a rough estimate.


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## ian (Jun 18, 2016)

Keep in mind that your CV estimate will go down as interest rates increase.


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## Eclectic12 (Oct 20, 2010)

emperor said:


> ... We are a fairly large organization so they actually have a website that calculates and shows you all this stuff in real time.


Interesting ... none of the calculators I have seen provide real time numbers. Is there some sort of statement that this is the case? Is the real time part limited to particular aspects of the pension?




emperor said:


> ... got rid of the retirement at 55 option ... Now the rule is if you retire at 55 you only get 40% of your value.


If I am understanding correctly, what has changed is that one can't retire on full pension at age 55, correct?





emperor said:


> ... So what I'm kind of hearing the only options you have is get out of the pension plan or quit the company. Other than that they have free reign to do what ever ...


Are there details of the pension that spell this out? Who are you hearing this from?

What makes DB pensions work is having as much economy of scale and $$ as possible. To help with this, the DB pensions I have been require the employees to join where the "opt out" is to quit the job. I have read a few DB pension plans that at age 55, allow one to choose between taking the commute value (CV) or keep the pension. The possibility of opting out at one's choice/timing is not something I have seen before.




emperor said:


> ... If I opt out will they have to pay me back that 3 dollars an hour they stole from me for the last 4 years?


Where it is possible to opt out, I doubt the pension would pay back the $$ taken to help it out. Is there a plan document that spells out that opting out is possible and what would happen?




emperor said:


> ... And will the government give me back my RRSP contribution room?


They give it back via a pension adjustment reversal (PAR) when quitting. My guess would be opting out would trigger the same thing.
https://www.canada.ca/en/revenue-ag...trators/pspa/pension-adjustment-reversal.html


Cheers


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## ian (Jun 18, 2016)

One of the enticements my former employer used to encourage grandfathered DB plan members to switch completely to their DC plan, including taking the DB CV and moving the money to a DC, was the PAR adjustment.

In most cases that I was aware of the individuals actual PAR was considerably less than the company estimate. Some even got burned by prematurely over contributing to their respective RSP's. Interest rates were high at the time so the CV's were low. Many who took the offer regretted ten years later.


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## Eclectic12 (Oct 20, 2010)

I had a couple of co-workers who were gung ho to leave the DB pension based on the PAR being returned to them to "fix" the lack of RRSP contribution room. I suggested this might not be the best move considering the age of the co-worker (not much time for growth) and that the DB pension was fully funded. I suggested he run the numbers before making a decision.

To his credit, where he sounded like he wasn't going to do this, he did. His conclusion was that a bit of an aggressive assumption for RRSP growth meant he'd be out of RRSP funds in six to seven years where for that DB pension, the minimum payout was ten years of pension.


Where the OP is correct that the pension numbers are fluctuating so much - that would add an extra consideration.


Cheers


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## Eclectic12 (Oct 20, 2010)

emperor said:


> ... I never get any contribution room for RRSP because of the pension so I can't even try to prop up my own retirement.


OOH, I've been in DB pensions where not much was granted so that the use of the RRSP was minimal.

OTOH, the articles I have seen for formula for the PA adjustment shows a built in minimum $600 a year of RRSP contribution room to be granted. Should one's tax return show no new RRSP contribution room at all, it sounds like there is a problem.

https://www.ratesupermarket.ca/blog/what-is-a-pension-adjustment/



Cheers


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## hfp75 (Mar 15, 2018)

My DB pension plan was being threatened 4 yrs ago. Basically, if changes were made the existing contributions would have been under the old rules and the new contributions, post [email protected] would be under the new rules, it would almost be like having 2 pensions that were married together.... your contributions under would be split between 2 sets of pension rules....

In the end my pension didn’t change....

I’m operating with the 85 factor - age and years of service.

H


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## Eclectic12 (Oct 20, 2010)

In my case, changes were made to the DB pension. 

The benefit formula used to have one part and now that two rates are in effect, it is a compound formula that has one factor (like the old complete formula) for the years of benefit under the old plan and a second factor for the years under the new terms. The two factors add up to the final benefit.

My plan has no factors.


Cheers


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