Canada’s largest publicly-traded companies could have eliminated their defined benefit (DB) pension deficits five times over with the value of what they chose to pay out to shareholders instead in 2017 alone, according to a new report released today by the Canadian Centre for Policy Alternatives (CCPA).
Put another way, these companies could have easily eliminated their pension deficits and still continued shareholder payouts.
The report updates research published by the CCPA in 2017, and compares the pension deficits of the roughly 90 companies on the S&P/TSX Composite Index with DB plans to shareholder payouts between 2011 and 2017. These company plans account for a large portion of all the country’s private DB assets.
”Year after year, companies are bringing in excess income, and year after year they decide to pay that out to shareholders instead of settling their pension obligations,” says CCPA Senior Economist David Macdonald, who co-authored the report with Chris Roberts, Social and Economic Policy Director with the Canadian Labour Congress.
“Shareholders are supposed to take on the firm’s risk. Instead, that risk is being shouldered by workers whose retirement security is compromised by outstanding pension deficits,” adds Macdonald.
Among the study’s findings:
- In 2011, S&P/TSX companies with DB pensions paid twice as much to their shareholders as it would have cost to wipe out their pension deficits. By 2017, shareholders payouts ($66 billion) were over five times the value of their pension deficits ($12 billion);
- Of the S&P/TSX companies with DB pension plans, two-thirds in any given year paid out more to shareholders than it would have cost to completely pay off their pension deficit;
- Most of the 10 companies with the largest pension deficits pay out far more annually to shareholders than the value of a one-time payment to eliminate their pension liability;
- Overall, pension deficits have shrunk since 2011, so it’s even easier to bring plans into solvency. But many companies are choosing not to.
“While requiring a minimal level of funding, Canada’s pension rules have left it to companies to decide whether to fully eliminate their pension deficit,” says Roberts. “Firms continue to push retirement risks onto workers in order to provide ever higher payouts to shareholders. It’s time for a new policy approach that considers firms’ financial strength rather than only focusing on the health of their pension plans.”
The report notes that enhancing public options for retirement security in the Canada Pension Plan, Old Age Security and the Guaranteed Income Supplement is the simplest and most comprehensive way to ensure a comfortable retirement for all Canadians.
- First Served: Private pension plan deficits and shareholder repayments in Canada is available for download on the CCPA website.
Source: Canadian Centre for Policy Alternatives