Now that Bill Morneau conquered the CPP it's time to move on to a harder pension problem: Don Pittis

Who would ever have guessed that hammering out a Canada Pension Plan solution would have been so easy?

With such widespread support for Finance Minister Bill Morneau's latest pension reforms, perhaps the government will finally have the confidence and wisdom to solve the other giant pension problem: the case of the missing money.

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Only a year ago, calls for CPP reform seemed to be falling on deaf ears. Opponents labelled contributions to our own retirement a "payroll tax" and talked about the danger of big government.

Job losses

Small business hollered that their share of the contribution would slash profits and lead to job losses, something the government denies. Some of those objections have not gone away.

"Finance ministers are putting ... jobs in jeopardy and willfully moving to make an already shaky economy even worse," said Canadian Federation of Independent Business president Dan Kelly in a scathing release just after the federal-provincial accord.

According to the CFIB, the only good thing about the reform was that it superseded the Ontario government's pension plan, which Kelly called "the CPP's far uglier cousin."

Surprising support

The surprise was not the CFIB's intransigence. Unexpected was the amount of support from some business owners and from commentators often considered right-of-centre and pro-business, despite the fact that some details have yet to be worked out.

As the C.D. Howe pension panel adviser Tammy Schirle commented in the Report on Business, among many advantages of the plan, when employers and employees contribute to the CPP they effectively save the future taxpayer the cost of paying the way of people who failed to save.

That sounds like an argument I made in 2013 that at the time was a voice in the wilderness in the face of a tidal wave of opposition to CPP reform.

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Politics have changed with the arrival of the Liberal government. But maybe the public mood has changed, too. If so, it is time for the government to solve the other great problem of Canada's pension system.

Several flaws with objections

There are several flaws with business objections to contributing to CPP. One is the idea that the true cost of contributing to the retirement costs of low wage and temporary employees should not come out of profits, but instead be borne by future taxpayers.

And this is exactly the next problem that Morneau, with his sophisticated understanding of the pension system from his career in that business, must now address.

There is no question that it is good to solve the problem of wage earners who fail to contribute enough to their own retirement, as the CPP reform goes part way to doing. 

Far more unjust is the problem of people who dutifully contribute to a pension throughout their lives and don't see the benefit, once again leaving taxpayers on the hook. It is the problem of ghost pensions, and it is something that in the wake of the CPP success, should not be impossible for Morneau to address.

Fantasy fiction statements

The essential problem is that while employees watch their pension payments come off their periodic cheque and while benefit statements show their pension amounts growing toward a comfortable retirement, that money being set aside is imaginary.

Government employees are not exempt from the travesty, as we saw in the Quebec municipal pension cuts and the collapse of Detroit. In both cases, governments claimed to be tucking away the pension funds but suddenly employees discovered those pension statements were fantasy fiction.

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In some ways, I suppose, when governments default on their responsibility, taxpayers are on the hook in any event, but the case of private companies that default on pensions is more egregious.

When companies go broke, money owed to pensioners is classified as part of the company's assets, so in the case of a large contribution shortfall, pensioners who gave up years of wages to cover their pensions, only get a fraction of the money they are owed. Secured creditors, those who lent money against a specific asset, get paid first, and theoretically are able to take all the money before pensioners get a dime.

Whether for public or private pensions, the solutions are surprisingly simple.

One easy fix is to make it a law that money set aside as indicated in pension statements is actually set aside. Instead of being kept in imaginary accounts, the funds are managed by bonded professionals whose only responsibility is to current and future pensioners.

Phased in changes

In that way, employers who strike a bargain with their workers immediately see how much it is costing them instead of running up deficits in their pension accounts that only get more and more impossible to repay when the employer gets into financial trouble.

In the case of companies that feel they cannot make a profit without the capital owed to pension funds, the simple solution would be to make it a law that any borrowing is treated as a secured creditor of the highest order.

Studies in the past have indicated that such rules, put in place when a company is healthy, are no impediment to companies raising money from other sources. Lenders do not expect healthy companies to fail or they would not lend them money in any case.

As with the CPP changes, there will be objections from business, but everyone else knows it should be done. The difficulty is making an abrupt change. 

That is the brilliance of the CPP plan that Morneau could repeat here. By phasing the changes in over a number of years, employers would be able to adjust to the new reality, but future pensioners — and taxpayers — would be saved from unexpected losses.

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​More analysis by Don Pittis