# can a company simply take away your pension plan eligibility?



## the-royal-mail (Dec 11, 2009)

I was reading this article and noted the following comment:

http://www.torontosun.com/2014/05/01/aecl-jobs-at-chalk-river-to-be-privatized
_
The current employees at Chalk River *will lose their pension plan eligibility* and other public service benefits. The contractor will need to deal with compensation, collective agreements and benefits. Walker said he understood the anxiety that employees have with this new venture.

“Employees don't lose the pension that they have earned,” he said. “*It will be up to the contractor to put in place a replacement pension system *and move forward.”_

Can anyone shed some light on what exactly this would mean for employees? Does it mean that as of a certain date they are simply removed from the pension plan? If a private operator takes over, are they obligated to put in a replacement pension? Or is this merely a ploy for the company to get out of the pension business and screw over the employees? 

Anyone with ideas of what is likely to actually happen?

P.S. I do not wish to have an ideological debate about the merits of what they are doing or whether or not they should do so. I am just trying to understand the mechanics here a bit better.


----------



## Daniel A. (Mar 20, 2011)

This is a pitfall for many when a company is sold or privatized they could end up with a DC pension plan or RRSP in place of their DB pension.
Same for benefits if the company taking over has lesser benefits that is what you get. 

What they have accumulated to date is protected but as many know when one has already got 20 years into a DB pension and a change like this is made going forward it will be a hard hit as it is usually the last five years in a DB pension where the value increases dramatically. 
I was almost faced with this scenario once, it can mean the difference of having a DB pension worth 200,000.00 instead of 500,000.00 no way can one make the difference up unless the company taking over agrees to just keep the current pension in place.


----------



## sags (May 15, 2010)

It depends on the pension plan.

In the autoworkers pension plan..........an employee earns a certain amount (lifetime benefit factor.......eg. $68.50) for each year worked.

Someone leaving the pension plan.......voluntary or forced..........retains the "lifetime" pension credit they have earned.

But, they could lose other milestone benefits they would never reach.........such as the 30 and out or early retirement bridge benefits.

The employee would have to wait until age 65 to collect their deferred pension.....or accept the commuted value when the pension ceased to exist.

The article doesn't give enough details on the pension plan to know what will happen for sure.


----------



## birdman (Feb 12, 2013)

Your assumptions are correct and in essence employees will be working for another employer and starting again in regards to salary and benefits, including pension if the new company offers one. It is unclear if the jobs are protected but from what I read I expect the employer will offer employees jobs at a yet to be determined salary and maybe benefits. I guess the employees hired have the right to say no and quit, or work for the new company on the basis offered, or work for the new company and then unionize and have the new company negotiate a contract with the union (employees). As mentioned, your existing plan is protected but on what basis is unknown. This is easily ascertained.
Many people expect a job and benefits to be for life but this is not the case. Companies and businesses are sold and the employees and unionized contracts do no necessarily go with the sale. Its usually just the business that is sold or sometimes the assets. However, in saying this, most employers will want to keep their existing employees for continuity and recognize their experience. As such, I expect that the new employer may well offer a competitive compensation package. As mentioned above, there is really not a lot of information provided. I see the article is almost 6 mos old and I would expect more details should be known. Governments often spin off part of their business. For example, here in BC the government owned hospitals have privatized the cleaning/ housekeeping to private contractors and the same thing with food services. All meals are prepared off site by an independent operator. I'm not an expert on the latter but am quite sure this is the case. In this scenario, I would expect the hospital workers were making good unionized wages when working directly for the government but now making significantly less???? Somebody with more experience on this could probably comment. 
Sorry for rambling but just jotted down my thoughts as the came.


----------



## the-royal-mail (Dec 11, 2009)

Thanks for the responses thus far. I guess it really does seem as mysterious to everyone else as to me. All of us need to be take care and be aware of our own futures. Feel free to post any additional info or background on this employer if anyone on the inside knows anything specific. Feel free to message me privately if you do not wish to post specifics publicly.


----------



## fraser (May 15, 2010)

If you are vested you will have a pension entitlement. Benefits such as health are open season unless there happens to be a union agreement. In my situation the company closed the DB plan and moved to a DC plan. I was grandfathered because of age and service. But, the employer made significant reductions, and in some instances eliminated the health benefit plan got retirees. 

A few years ago a senior partner at a large Calgary firm told me that Pension litigation and employment law was their fastest growing area of practice. He expected it to be do for quite some time
Litigation involving employers, employees, pension advisors, and fund trustees.


----------



## gibor365 (Apr 1, 2011)

When our US based company was sold to Indian company, the only things that stayed the same is salary, vacation days and seniority... Pension plan benefits as well as health plan benefits were significantly changed (in some cases for better, in other for worse - as an example we had before 10 official sick days, now we have none)... However, during the sell , everyone could've take package (and a very good one) and leave


----------



## HaroldCrump (Jun 10, 2009)

The way I understood the press release is that existing pension benefit will remain, however, after the privatization, the employee (if still employed) will no longer accumulate any more pension.
This would effectively be equivalent to resigning from that position as of the date of privatization.

Once the new contractor takes over, a new compensation package will be put in place.
It may include a similar DB pension, or a DC pension, or no pension at all - nothing can be known yet because the RFP process has not even begun.

If your friend is a current employee of AECL, he/she should assume that the current pension program will end on the date of privatization (or a date agreed upon at that time).
He/she would not lose the pension benefit already accumulated as of that date.

If I were to speculate, I'd say the following terms will be made effective at that time:
- Take commuted value and transfer into an individual LIRA
- Keep pension but not claim until 65 (or take early with major penalties)


----------



## Rusty O'Toole (Feb 1, 2012)

Who is going to stop them? The company? The union? The government? Where do you think the money goes?


----------



## carverman (Nov 8, 2010)

HaroldCrump said:


> If I were to speculate, I'd say the following terms will be made effective at that time:
> - *Take commuted value and transfer into an individual LIRA*
> - Keep pension but not claim until 65 (or take early with major penalties)


There is a bit of gamble taking the commuted lump sum and putting it into a LIRA, I would think...it all depends on the
investment climate and whether taking it out as an option will be better in the long run...
http://business.financialpost.com/2013/08/07/your-pension-is-now-the-time-to-take-the-cash-instead/

In some cases, like my Nortel DB plan, it is being wound up because there is not enough growth to sustain it based on current pension payouts and future pension payouts.
I don't have a choice here ..when it is finally wound up, I will get the option to put the commuted value of my pension (and I have been drawing it now for 11 years) into a LIRA or a Annuity with some life insurance company that will take a chunk of it to manage it, no doubt. 
If I had a choice (and I don't with the Nortel DB plan)..I would want to investigate *number 2 *in the above link very carefully.



> *2. What rate of return do you need to outperform your pension? *A financial calculation needs to be made based on life expectancy to determine what rate of return would be needed on the cash, to be equal to the value of the pension. Sometimes this break even rate is as low as 2% or 3%. In these cases, taking the cash is likely the better option as you’re likely to have at least 4%+ annual returns over time, possibly over 7%. This can add hundreds of thousands of dollars to your wealth. *If the break even number is 5% or higher, meaning you need to get better than 5% annualized returns to end up better, then the pension is probably a better bet on this factor – because of the guaranteed nature of pensions.
> *


----------



## the-royal-mail (Dec 11, 2009)

^ Thank you for the responses.


----------



## HaroldCrump (Jun 10, 2009)

carverman said:


> There is a bit of gamble taking the commuted lump sum and putting it into a LIRA, I would think...it all depends on the
> investment climate and whether taking it out as an option will be better in the long run...


Yes, of course.
A DIY LIRA is a very different ball game than a defined benefit pension.
You are on the hook for managing your own portfolio, ensuring inflation indexation (equal to whatever the pension provides), ensuring longevity protection, spousal benefit, and replicating other features of the defined benefit pension.
However, this is usually one of the options made available when a plan is being wound down.
The OP may or may not take this option.

Usually the DIY risk needs to be juxtaposed against either waiting until 65 to receive a small pension, or take the pension early with major clawbacks.
Depending on the age of the OP, years of service, accrual rate, and other pension amount calculation metrics, the pension due at 65 (or the reduced pension due earlier) could be so small in nominal terms that the individual may say, "Screw it, I will take the cash value and invest on my own. Not worth waiting 30 years to receive $200 a month."


----------



## sags (May 15, 2010)

This is a very odd arrangement though.

The Crown corporation which presumably has a contract with the employees regarding wages and pensions....is being "temporarily" contracted out for 6 years. Then what ? The employees are returned to the Crown corporation again ? Another contractor ?

It will remain owned by the Crown corporation, but the contracting company would determine a new wage and pension contract ?

I notice the union (if there is one) wasn't mentioned in the article.......and the information is basically coming from the CEO of the Crown corporation.

I am thinking maybe he is saying what he "hopes" will happen.....but not necessarily what "will" happen.

I would be surprised if the contract company doesn't perfectly match the wages and pension benefits........this doesn't end up in court.

It could appear as a clumsy attempt to arbitrarily lower wages by claiming the employees are employed by a private contractor.

In Ontario....it would be deemed illegal, as the entity (in this case the Crown corporation).....who direct the work to be done, provide the place of employment, set the rules for employment etc. are deemed to be the employer........regardless if there is a third party contractor involved.

It is also illegal to wholesale terminate employees (unjust dismissal) to replace them with cheaper workers. A company can legally reduce the workforce if they have a reduction in demand. They can layoff or terminate employees if they wish, but they can't simply terminate them and replace them immediately with cheaper workers. 

Well...........they can if they want. They can do anything they want.

But they may end up paying for it...........from a court judgement.

I am not sure how this is going to work out, but it will be interesting to watch unfold.


----------



## sags (May 15, 2010)

If a private company is sold to another private company.......and there is DB pension plan involved, the seller must fully fund the pension before windup of the pension plan.

Ordinarily that would be a little good news for employees in the pension plan........assurance of benefits from a fully funded pension.

But, I am not sure how that applies in this case.........given the unusual structure of the arrangement.


----------



## sags (May 15, 2010)

There is a longer story about it in the Ottawa Citizen.

There are several unions involved and I would guess they will wait to see what comes out of the collective bargaining process, before determining if legal action is warranted. At this point nothing is decided......so there is nothing to take action on.

http://ottawacitizen.com/news/aecl-privatizing-2850-jobs-at-chalk-river


----------



## carverman (Nov 8, 2010)

sags said:


> If a private company is sold to another private company.......and there is DB pension plan involved, the seller must f*ully fund the pension before windup of the pension plan.*
> 
> Ordinarily that would be a little good news for employees in the pension plan........assurance of benefits from a fully funded pension.
> 
> But, I am not sure how that applies in this case.........given the unusual structure of the arrangement.


Not sure if that applies either..the legalese (see link on mergers and acquisitions) seems to say:



> In several provinces (including British Columbia, Ontario and Nova Scotia), if a successor registered pension plan is not provided by the purchaser to the transferred employees, t*he pension regulator may order the seller to wind-up its pension plan, either partially or fully, depending on whether some or all of the seller’s plan members have been hired by the purchaser. *The amount of notice that the regulator must provide regarding this type of order varies by province. Recent amendments will remove partial wind-ups for Ontario registered pension plans in the near future.


Lets assume a hypothetical case,where the company has not been doing that well and there is considerable
funding shortfall in their DB pension plan..if they don't have the financial resources to topup the shortfall,
and want to sell out, what can the pension regulator do or the employees, besides a court challenge on that. 
more about it here:
http://www.mergersandacquisitionsin...ion-legislation-on-corporate-transactions-146


----------



## the-royal-mail (Dec 11, 2009)

Thanks to HC, sags and carver for your thoughts on this. Yes, this does seem to be really odd. Of course, this seems to be a federally regulated company and of course the feds can do whatever they want. But they as the "old company" are not going anywhere. The federal pension will continue to exist and service the thousands of other members. It just looks like these particular members are being removed from the plan.

This reminds me a bit of what happened when they broke apart Ontario Hydro and formed several divisions such as OPG, HydroOne, New Horizons etc. And how GO Transit was downloaded to Toronto about 10-15 years ago but later brought back to provincial control.

Tricky stuff. Hard to understand this stuff if you're neither a lawyer or a pension administrator.


----------



## HaroldCrump (Jun 10, 2009)

According to the article sags linked to, there is a precedent for this type of GoCo arrangement ("government-owned contractor-operated").
The scientists, engineers, and operators at the Candu reactor went on strike in 2012 against SNC Lavalin to protest against the dissolution of their defined benefit pension, and conversion to defined contribution.

Eventually, the unions settled for a slightly higher wage increase (3.6% vs. 2%), and gave up the defined benefit pension plan and agreed to be switched to a DCP.

*Nuclear scientists end strike at Candu Energy*

Therefore, there will be a precedent in front of the courts, if the AECL workers at Chalk River decide to take this to court.

Given that the previous incidence is from the same industry, and essentially the same company, the safest assumption for the OP should be that a similar outcome may result in Chalk River i.e. conversion of DBP to DCP, and perhaps offset with a slightly higher than normal wage increase in the first year or two.


----------



## fraser (May 15, 2010)

Keep in mind that pension eligibility and pension entitlement are two very different things.


----------



## Addy (Mar 12, 2010)

I've posted related concerns about pensions - to me, they are never guaranteed. Almost 100% guaranteed, but never guaranteed. I reiterate this to my husbands military coworkers (most who seem to think after 20 (or now 25) years of service they will retire making the same money they currently make (ie 100% of the same income they do while working). A few have been shocked to find out they will only make a percentage of what they do now - some of these people have worked for over 10 years! I can't believe how little people understand about pensions (including myself, I find it difficult to grasp seemingly basic concepts (others think it's basic) when it comes to pensions, not sure why).

The idea that nothing is guaranteed has me trying to lessen the impact should something so remote happen, by diversifying my retirement income (ie rental income, dividends, more than one pension, cash...).

Does anyone else plan retirement around basically considering their pension non-existent?


----------



## Daniel A. (Mar 20, 2011)

Addy polls and studies have shown that most people don't have a clue but have made assumptions.

In this day with so much information available to the average person it seems they have other priorities even as time grows short.
The federal government only talks about the maximum CPP available people assume this is what they will receive.

Over the years in conversation with others I've asked about others workplace pensions many think they have one but don't.
Still others don't know if their pension is DB or DC and these are very smart people.

I have never considered my DB pension non-existent just an understanding of how it could be affected in troubled times.
In my case all has worked out and I've been collecting the pension for a number of years now and the pension fund is 100% funded managed by a third party. 

There are some really good books that explain pensions that are easy to understand.


----------



## HaroldCrump (Jun 10, 2009)

Addy said:


> Almost 100% guaranteed, but never guaranteed.


I beg to differ - govt. pensions are guaranteed insofar as the solvency of the govt. is guaranteed.
The govt. can raise taxes or simply print money to pay the pensions.
Often, they do both.



> I reiterate this to my husbands military coworkers (most who seem to think after 20 (or now 25) years of service they will retire making the same money they currently make (ie 100% of the same income they do while working).


That is pretty close for a federal civil worker who remained employed with a federal pension for 30 - 35 years, and retires at 65 (or earlier with a bridge), and is eligible for full CPP + OAS.
The 2% accrual rate will give them nearly 70% of the average of their 5 highest drawn salaries, which is usually the last 5 years of employment.
OAS will give them another few % points.
Apply the age credit and pension splitting, and they are pretty close to 90%, if not more.

I don't know the terms of military pension, though.



> A few have been shocked to find out they will only make a percentage of what they do now - some of these people have worked for over 10 years!


10 years is usually not sufficient to accrue any significant amount of pension, in either private or public sector.
I'm not sure how someone can expect full pension after 10 years of employment.


----------



## Addy (Mar 12, 2010)

HaroldCrump said:


> 10 years is usually not sufficient to accrue any significant amount of pension, in either private or public sector.
> I'm not sure how someone can expect full pension after 10 years of employment.


I don't believe I said they were expecting to retire in 10 years with a pension.

I said, or at least meant to say, they have been employed for 10 years... meaning someone who has worked at a place for 10 years really should know a fair bit about their pension one would think.

And many military plan to retire in 20 or 25 years (whatever minimum they signed up with depending on their contract) and have a 100% pension. This is what I'm surprised about.


----------



## Addy (Mar 12, 2010)

Daniel A. said:


> Addy polls and studies have shown that most people don't have a clue but have made assumptions.
> 
> In this day with so much information available to the average person it seems they have other priorities even as time grows short.
> The federal government only talks about the maximum CPP available people assume this is what they will receive.
> ...


Thanks Daniel A. - do you have any titles of the books off the top of your head? I would like to do some reading and learn more. I have tried to get information but I feel it's like pulling teeth - and most likely because I don't know what questions to ask.


----------



## sags (May 15, 2010)

I would suggest going to the union pension websites........as they often have a FAQ area.

The HOOPP pension plan is an example........but there are others, which describe in detail the basics of a DB pension plan.

http://hoopp.com/Members/About-the-plan/

Each plan is a little different..........so the information would be best gained from the website of the actual pension plan.

People do often lack knowledge on their own pension plans, and don't bother seeking it out until just before they plan to retire.

That is just human nature not to concern oneself with something so distant in the future.


----------



## HaroldCrump (Jun 10, 2009)

Addy said:


> I don't believe I said they were expecting to retire in 10 years with a pension.
> I said, or at least meant to say, they have been employed for 10 years... meaning someone who has worked at a place for 10 years really should know a fair bit about their pension one would think.


Fair enough...it sounded like the former statement the way it was written.
I would also expect someone employed for 10+ years to know the details of their benefits & pensions well, too.
If these people you speak of don't, they are probably disinterested in personal finance in general, not just their pension details.



> And many military plan to retire in 20 or 25 years (whatever minimum they signed up with depending on their contract) and have a 100% pension. This is what I'm surprised about.


I don't know the specifics of Canadian military pensions, but I believe those are amongst the most generous in the land (along with RCMP).


----------



## Daniel A. (Mar 20, 2011)

Addy this book Pensionize Your Nest Egg is worth reading. 

MoneyGal who posts here is one of the authors and I understand there will be a new book in spring focused on Canada. 

Contact her for details.


----------



## Eclectic12 (Oct 20, 2010)

Addy said:


> ... I said, or at least meant to say, they have been employed for 10 years... meaning someone who has worked at a place for 10 years really should know a fair bit about their pension one would think...


 ... and I've tried to help co-workers understand and been told "it's too complicated ... ".

There's a big gap between what people could over time learn and what they are willing to put the effort into.




HaroldCrump said:


> Fair enough...it sounded like the former statement the way it was written.
> I would also expect someone employed for 10+ years to know the details of their benefits & pensions well, too.
> 
> If these people you speak of don't, they are probably disinterested in personal finance in general, not just their pension details.


 ... or have decided that the task is beyond them ... despite handling similarly complicated things in other areas of their life.


Cheers


----------



## fraser (May 15, 2010)

I worked with people who had 20-30 years service yet did not know the details of their DB pension plan. This can be very important if the pension plan administration is contracted out to a third party. 

It paid me handsomely too understand my plan and to question the first, second, and third set of numbers that were placed in front of me. They got it right on round four and the incremental value was significant. It may be diff rent in a company with a huge hr and pension group.


----------



## OhGreatGuru (May 24, 2009)

I don't know what's so difficult to understand. It's hard on the employees, but basically AECL is privatizing the operation of the facility. The employees affected will no longer be AECL employees. The pension benefits they have earned up to the date of transfer are secured by both AECL and government. But any pension arrangement going forward is up to whatever they can negotiate with their new employer. (If he in fact hires them - nowhere in the article does it say the new operator has to take them all on, or for how long. Although customarily in such arrangements there is an agreement that the new employer will take on all personnel for a certain minimum period. )


----------

