Originally Posted by
laidback71
In a DB plan, the company is taking on the investment risk. However, there is also the risk to the employee that if the plan is underfunded and the company goes bankrupt they are SOL. Look at Nortel. A lot of people's retirement security went up in smoke. A lot of companies are allowed to maintain an underfunded plan (the autoworkers' plans were before the 2008 crash, don't know what the status is now).
To fully benefit from a DB plan, you have to work for the same company for life. It discourages worker mobility.
These are both great points. The government will generally try to help people out when a company goes under, but there is no obligation. There is currently a push in Ontario, lead by former Nortel employees, to make pension obligations the highest ranking debt, so that if a company goes bankrupt the retirees get paid first. Not sure we're going to see it go anywhere.
Originally Posted by
laidback71
Further, when you look at public DB plans, I believe that some of these do not have to be funded (paid out of general revenues). So government's bargain away future benefits and leave it future governments to deal with (unfunded liabilities).
There is a HUGE difference between Canada and the US here. In Canada, Governments report their financial information on an accrual basis, this is nearly identical to how companies report their numbers. What that means is that unfunded pension liabilities (as well as any other unfunded liability) are included in the $564 billion of debt that the media talks about. Similarly, when the media talks about the federal deficit, that includes the required pension contributions. So to post a surplus, the government needs to not only fully-fund their cash-based operating costs, but also their pension contributions.
In the US, the media (and politicians) talk about the debt on a cash basis. So the $14.2 trillion the media talks about DOESN'T contain unfunded pension liabilities (nor does it contain the massive unfunded Social Security, medicaid or medicare liabilities). It is actually possible to get the real number as in addition to the cash basis statements every year the US Government Accountability Office (GAO) prepares financial statements on an accrual basis. As of September 30, 2010, the accrual basis federal debt was a whopping $62 trillion! The $14.2 trillion talked about by everyone, is literally just the cash they have had to borrow to date and entirely ignores any future obligations.
Originally Posted by
yulred
Thanks. Interesting. I can see where AC are coming from. Am I to understand the DC plan will only apply to new hires, or will it apply to current employees too?
But yeah, I can't see how they're going to fend off the Defined Contributions plan. Out of curiosity, will these cuts apply across the board - to all positions including execs? Or is this only going to hit unionized employees, with execs still picking up Defined Benefits pensions? Because I really won't be surprised if that becomes a focal point in the mudslinging.
Are AC planning to cut their contribution from 12% to 6% (or somewhere in between) under the DC plan?
Moving current employees to DC is very unlikely, it would likely be just new employees. I could see them moving execs (even current ones) to DC as well as its good PR and they earn so much it really won't make a difference anyways.
If AC would change the % they contribute I really couldn't say, that's entirely based on negotiations.