Submission: Submission

Canadian Federation of Independent Business Submission

February 27, 2009

The Hon. Dwight Duncan
Minister of Finance
Frost Building, 7th floor
7 Queen’s Park Cres.
Toronto ON. M7A1Y7

Dear Minister:

Re: A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules - a report by the Ontario Expert Commission on Pensions

The Canadian Federation of Independent Business (CFIB) appreciates the opportunity to comment on the Ontario Expert Commission on Pensions (OECP) report, A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules, on behalf of our 42,000 Ontario small and medium-sized business members.

CFIB has been and will continue to be a strong advocate for improvements to pension savings. The provincial regulatory framework for defined benefit (DB) pension plans is certainly due for review and improvement. There is a need to objectively assess the shortcomings of these plans, and to enhance the fairness of the system.

The Ontario Expert Commission on Pensions was given the opportunity to set the tone for an open and constructive dialogue on pension policy review. CFIB participated actively in the entire process by providing the Commission with the benefit of direct input (through survey questions and mandate ballots) from our members. Our original research highlighted the challenges that entrepreneurs face when it comes to retirement and offered their views on how the current regulatory framework should be altered.

Although the Commission engaged over 400 stakeholders in this debate, which was admittedly not an easy task, it could not strike a balance between all the recommendations that were submitted. From the onset, CFIB raised the concern that the review process will be crippled by the Commission's narrow mandate: the review did not address the one realm where DB plans have run into most trouble and have encountered most scepticism - the public sector. Hence, there are no recommendations in this report that address the growing gap between private and public pensions, which is a serious shortcoming of the review process and a major disservice to most Ontarians.

CFIB has long called for increased efficiency, transparency and accessibility to the pension system. At our meetings throughout the review process, we strongly encouraged Commissioner Harry Arthurs and the other commission members to identify the reasons for the disturbing lack of clarity, accountability and transparency. Information on pension plans and pension benefits is scarce, not easily accessible, and, at times, unnecessarily complicated, which does not allow the general public (including independent business owners) to actively engage in the pension debate. Lack of research data also hinders our attempts to estimate the extent of the real deficiencies of the pension system and to offer more practical solutions. The Commission's research initiative made some progress in addressing the current obstacles to obtaining credible information on pensions. We are also pleased that the Commission is urging the provincial government to enhance its capacity to analyze pension data and share it with stakeholders.

CFIB also supports the direction to make actuarial valuations of pension plans more transparent and reasonable. We agree with the Commission that valuations should not be subject to discretionary judgments, if they are to provide a factual illustration of the current fiscal health of a pension plan.

We welcome the Commission's efforts to promote full funding of pension plans and to discourage practices that lead to under-funding. We find it reasonable to consider pension plans that are funded between 95% and 105% sound and fully funded. CFIB also supports the recommendation that no contribution holidays should be offered, if the plan is less than 95% funded.

In our presentation to the Commission in 2007, we underlined the most visible obstacles that prevent small firms from having a company pension plan. The Commission's report acknowledges that small businesses are disproportionately affected by the high cost, complexity, and regulatory burden of administering pension plans. It further recommends that small firms should have access to template pension plans with simplified registration and filing requirements. Commissioner Arthurs, however, added that "this is admittedly a small measure" in helping entrepreneurs set up a company pension plan.

There are, however, numerous recommendations in the report that CFIB cannot lend support to.
We strongly disagree with the Commission's recommendation that labour unions should have a greater role in DB plan governance in order to encourage greater participation in DB plans. Such a direction will further exacerbate the problem with unfunded liabilities of DB plans (instead of fixing it) as collective bargaining will put additional pressure on employers to provide for more generous pension benefits. The push by organized labour to maintain the existence of DB plans at all cost has contributed (in no small part) to putting pension plans in both the public and private sector on life support.

CFIB is also very concerned with the Commission's recommendations that call for the creation of five permanent agencies - a Pension Champion; a Pension Community Advisory Council; a Pension Agency for stranded pensions; an Ontario Pension Regulator; and an Ontario Pension Tribunal. While we acknowledge the fact that changes to the regulatory framework are necessary, we question the need for establishing new institutions. It would be short-sighted to assume that the pension system ailments will be cured by creating new levels of bureaucracy. Such an approach may also have a long term detrimental effect on public finances, as most of these agencies will require additional financial resources that may be well above the means of Ontario taxpayers during these trying times.

We also caution you on the recommendation to raise the monthly pension benefits, provided by the Ontario Pension Benefits Guarantee Fund (PBGF) from $1,000 to $2,500. Our members overwhelmingly reject the notion that the government should backstop private sector plans that run into financial trouble. Guaranteeing pension plans exposes them to future financial risks and creates a disincentive for the plans to be cost-effectively managed. In recent media reports, Commissioner Arthurs admitted that the current financial state of the PBGF is fragile and all it would take "to cause the plan to go broke" is one or two large companies going bankrupt.

Minister, we urge you to take a proper look at Ontario's pension system by setting the mandate of any new legislation in a wider context - one that captures the full spectrum of economic challenges and social unrest with the current system. Levelling the playing field between the treatment of retirement savings for public and private sector individuals would be a step in the right direction. Clearly, the huge unfunded liabilities of public sector DB plans have already become unsustainable for Ontario taxpayers. We strongly oppose your government's inclination to use the taxpayer as the default go-to mechanism for covering these growing shortfalls. Independent business owners are being saddled with the funding of lavish public sector pension plans at a time when they cannot afford anything remotely comparable for their own retirement. We are on our way to a two-tier retirement system. With the current economic challenges, the spotlight on this issue will increase even more as the gap between the two classes of pensioners becomes much starker. It would be imprudent to turn a blind eye to this trend, especially at a time of a growing economic uncertainty.

To conclude, the provincial pension policy review is happening none too soon, as it is clear that the existing retirement system needs to be remedied. CFIB recommends that changes to the provincial pension legislation be guided by the following principles which ensure retirement fairness for all Ontarians:

  • The Ontario government should adopt an overarching principle of fairness for all Ontarians to be able to afford a decent retirement.
  • The Ontario government should engage in a wider pension policy review that includes public sector plans. The overall objective of any pension reform should be to level the playing field between the treatment of retirement savings for public and private sector individuals. If the public sector offers richer benefits compared to the private sector, it may be necessary to give private sector employees and employers more options and more capabilities in saving for retirement.
  • The government needs to look into realistic solutions to the unsustainable funding deficiencies of defined-benefit plans. The taxpayer should not be the default go-to-mechanism to fund government pension plan shortfalls. Options should include mechanisms such as the capping of taxpayer funded contributions, benefit de-indexing and benefit restructuring.
  • Ontario must move toward greater reliance on defined contribution plans rather than defined benefit pension plans which are far more expensive to maintain and much more opaque. Retaining defined benefit plans for existing employees and setting up defined contribution plans for new employees is a common way private sector employers have chosen to act.
  • Federal and provincial institutions should harmonize solvency funding rules for private and public sector pension plans across the country, so that every plan is held to the same standard. The disturbing lack of clarity, accountability and transparency in the pension system needs to be corrected.
  • As one strategy for achieving fairness for all Canadians, Ontario should work with the federal government to create opportunities for CPP plan members to voluntarily contribute more to their retirement savings.

We remain committed to participating in all stages of the Ontario pension policy review.


Original signed by

Catherine Swift
President & CEO


  1. Canada's Pension Predicament, 2006
  2. Retirement: A Matter of Fairness, CFIB's presentation to the Ontario Expert Commission on Pensions, 2007
  3. Wage Watch, 2008