Tens of thousands of Canadians could lose pension benefits but all the politicians and the media can focus on is scandal.

With all the furore in Ottawa over secret tapes, the sponsorship scandals, and razor-thin confidence votes, events which could affect the future well-being of millions of Canadians have sunk below the surface of public consciousness.

One example is the May 26 announcement by the Department of Finance of a national consultation on the future of defined benefit (DB) pension plans in this country. These are plans that guarantee members a pension for life after retirement, based on income and years of service. For many people, these pensions will mean the difference between a comfortable retirement and one spent living below the poverty line.

The reality is that private DB plans in Canada (and elsewhere) are in a crisis situation. The ravages of the bear market left many of them underfunded and some corporate sponsors have run into serious financial problems that have rendered them incapable of making up the shortfall.

The basic issue is very simple: will private defined benefit pension plans be able to make good on their obligations to retired workers? Or will an unacceptably high percentage of these plans be forced to reduce benefits or even, in a worst-case scenario, default on them entirely?

Of course, not all employer and union pension plans are in trouble. Some are in good financial shape, despite the ravages of the bear market. But others are hurting and a few have actually gone under, leaving their participants angry, frustrated, and helpless.

Former employees of the St. Anne Nackawic Pulp Company in the small community of Nackawic in New Brunswick’s Saint John River valley west of Fredericton were shocked to find themselves in exactly that position in late 2004. The mill went into bankruptcy in September of that year, throwing half the town’s population out of work. But that was just the first blow. Later came the news that the company’s pension plan had run up a deficit that the Canadian Auto Workers union said could be as much as $25 million. As a result, all employees under 55 years of age were expected to lose their pension benefits while older workers would experience cuts. The grim faces of ex-employees shown on the CTV National News told the whole story. Their lives had been devastated, their futures were unknown, and there seemed to be nowhere to turn for help.

The Certified General Accountants Association of Canada warned of a “looming social and economic crisis” in a 2004 report on the health of the country’s defined benefit pension plans. Titled Addressing the Pensions Dilemma in Canada, the survey of 847 plans, which uses data and research provided by Mercer Human Resource Consulting, concluded that 59% of defined benefit plans were in deficit with the total amount owed by employers being a staggering $160 billion.

In the report, the CGA fingered the bear market and low interest rates as being the proximate causes of the crisis but warned of “deeper systemic problems which require redressing.”

The Department of Finance has heeded that call. It has released a Consultation Paper in which it asks for submissions on how to deal with a range of challenges facing the defined benefits plans governed by the Pension Benefits Standards Act, 1985 (PBSA). Federally-regulated plans represent only 10% of all the registered plans in Canada but whatever initiatives Ottawa decides to take will be looked at closely by the provinces.

Some of the issues on which Finance wants input are whether there are disincentives to adequate funding in the current legislation, how plan surpluses should be handled, how to deal with partial plan terminations, how to provide more flexibility for rebuilding plans that run into financial trouble, and whether members should be provided with more information about a pension plan’s financial status.

The final item in the paper could become one of the biggest political issues in Canada within the next year – whether we should create a national pension benefit guarantee fund to bail out plans that crash and burn. At the moment, only Ontario has such a program. It is very limited in scope but has still managed to run up a deficit of $107 million.

If the Government of Canada were to go down that road, and draw in the provinces with it, the financial implications could be huge. In the U.S., that country’s Pension Benefit Guaranty Corporation (PBGC), a federal agency that insures the pension benefits of 44 million Americans, lost US$12 billion in 2004 after stepping in to support almost 200 plans during the year, including those operated by such high-profile companies as Kaiser Aluminum. The PBGC is facing long-term liabilities totaling US$62 billion as a result of being forced to provide financial assistance when plan sponsors reneged on commitments. Some observers believe that only a large-scale bail-out by the U.S. Congress can keep the agency solvent.

The Consultation Paper doesn’t dwell on the potentially huge liability such an agency could create here but it does note that such an organization “could provide a disincentive for employers in financial difficulty to properly manage their pension plans to control risks if their pension liabilities will be covered”. It also warns that the cost of premiums to provide the contingency fund could drive employers away from defined benefit plans and to defined contribution plans where there are no benefit guarantees and pension payments are determined by the returns earned on the invested contributions.

Clearly, this is a major issue with significant implications for employers and employees across the country. It deserves intense scrutiny and intelligent discussion. But what preoccupies our media and our lawmakers? Who said what to whom in a tawdry political power play in Ottawa! Oh, Canada!