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Pension fall short



April 01, 2008 – Comments (8)

The Ontario Teacher's Pension has always been considered one of the richest, but it is short about 12% by recent calculations.

I've been saying that people don't pay into pension plans what they take out.  I think the OTP has 7.5% contributions from employees and well as employers, which is a fairly high contribution rate, although the payout rate is excessive and certainly not paid for and could never be paid for with that level of contribution.  The plan requires beating the market, as do many pensions. 

I just read Big Picture.  Was today's run started as an April Fool's joke

8 Comments – Post Your Own

#1) On April 01, 2008 at 7:10 PM, Tastylunch (28.61) wrote:

ouch. I remember when my grandmother lost a couple checks since the state of Ohio teacher's retirement fund had invested heavily in Enron....

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#2) On April 01, 2008 at 7:31 PM, dwot (29.45) wrote:

That story got my attention because of how often I've heard the pension is rich and strong.


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#3) On April 01, 2008 at 8:57 PM, XMFHelical (< 20) wrote:

My father in law recently retired on a pension from IP.  I'm 44 and have never been employed by a company with even a semblance of a pension play (that's biotech for you - not even a 401k where I am now).

My first question to him about the pension was 'Can you buy insurance for it'.  He didn't know (I don't either).  Or will they give you a lump sum that you can use yourself (if it isn't enough to buy an annuity that matches the pension, probably not worth it -maybe).  Anyway, pensions started to hit the fan earlier this decade and I doubt we've seen the end of it.  Retiree's from my generation, besides not likely seeing social security payouts of the past (which wasn't a retirement plan anyway) won't have pensions either.  And not enough are saving in IRAs and such.  It will be a large problem.



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#4) On April 01, 2008 at 9:42 PM, dwot (29.45) wrote:

HelicalZz, I am in a similar boat with the pensions, but not quite.  I never had one until I went into teaching, which was later, and my husband only started working for a job that has one about a year and a half ago.  I'm 46.  The rate I was building pension when I was 65 if I kept going at that rate I'd have gotten about $800/month according to my last notice.  The job I am at right now is way better.  People have asked me why I went north...

Each generation has been expected to pay for a larger burden of financially unsustainable programs.  Company pensions were slaughtered with a vengence when we got to the work force, as were other benefits, although not everywhere.  I compare my wages and buying power to my father's.  I remember in the 80s household income was $60k and he bought an acre property for $100k.  This is an acre.  And this million dollar baby is on the same street, half a mile down the road.

So, that same home is about $800-900k, maybe a million now. Think I have household income of $600k?  How about half?  How about a third?  Two people with their qualifications might make $70-100k now, so a 30% increase in wages and 1000% increase in housing.

When you look at the inablity to provide for a retirement due to just not making ends meet and not getting a pension, I'd say a large problem is an under estimation.

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#5) On April 01, 2008 at 10:45 PM, iamamartin (96.20) wrote:

Wife has a defined benefit (old skool) pension & retirement health bennies in the Public sector. I have a 401K only - all Private sector. I know we're (pension) risk diversified.  I am also looking at dividend paying stocks for the long haul. Yeah we pay into social security, but I'm GenX and not that hopeful.

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#6) On April 02, 2008 at 1:23 AM, dwot (29.45) wrote:

iamamartin, I am not hopeful about pension at all, not the one I am paying towards, however, I figure getting part of a bigger amount promised is better than getting part of a smaller amount promised.

 So, Canadian pension plans are holding about $20 billion of that ABCP.

Crawford feels investors' anger Worried people holding frozen ABCP tell committee they don't understand the plan to restructure the debt market and they want their money back


00:00 EDT Tuesday, April 01, 2008

MONTREAL AND TORONTO -- The small investors suddenly have the power in the asset-backed commercial paper market, and they're letting the big ones know it.

Individual investors packed rooms in Montreal and Toronto yesterday to tell the committee of big holders that's pitching a restructuring plan for Canada's frozen $32-billion commercial paper market that there's a lot of work yet to be done before the plan will pass a vote that small holders will dominate.

The meetings were sometimes testy, and investors didn't hide their anger, but committee chairman Purdy Crawford said he understands that the ABCP holders aren't just "venting" - they have serious demands and they are willing to use their clout to achieve them. Those demands include being bought out at 100 cents on the dollar, avoiding losses that other, bigger investors may be forced to take.

"If you have a result you want to achieve, you can't sit around and say 'this is nice,' you have to put the cards on the table," Mr. Crawford said.

He reiterated that he is "optimistic" a deal can be worked out to win the support of small investors and that "we're going to do what we can within reason" to help them.

There are believed to be more than 1,800 individuals stuck holding about $400-million of frozen paper, most of them clients of Canaccord Capital Inc., who can determine the fate of the restructuring plan because they far outnumber the big investors who negotiated the proposal. A vote will be held on April 25, and a majority of those who cast a ballot must be in favour of the plan for it to pass.

Canaccord is working on a plan to aid its clients, but nothing is settled, leaving the committee facing the prospect of heading west to Calgary and Edmonton today to confront yet more angry holders with no answers for their demands.

"I'm looking for a better solution than the one being offered," Mark Wasserman, who put money into ABCP through Canaccord, said in an interview in Montreal.

Investors also took issue with the committee's presentation, which they said was tough to follow.

"I found your presentation interesting but totally incomprehensible," Sandy Currie, an investor who said he holds about $205,000 of ABCP, told Mr. Crawford's team in Toronto. "Take it home, show it to your wives, see if they understand it."

Once again, the issue of releases that would absolve all players in the restructuring of any legal liability drew the ire of investors.

"I am better off, in my mind, taking my loss today and exercising my legal rights against my bank," said investor Hy Bloom, who attended both investor meetings yesterday. His two holding companies have filed a $12-million lawsuit against National Bank in Quebec Superior Court, alleging misrepresentation.

At times, the back-and-forth between the small investors and Mr. Crawford revealed the frustration that has built since the restructuring ordeal began.

"You cross-examined me long enough, sir, you can sit down now," Mr. Crawford said to one questioner at a meeting in Toronto yesterday morning.

The meetings are being closely monitored by Ottawa. Yesterday, Liberal finance critic John McCallum said he had decided to postpone asking the House of Commons finance committee to hold hearings on third-party ABCP because he did not want to interfere in the process.

One person at the Toronto meeting, who asked not to be named, suggested it's unfair that individual investors are able to jeopardize the plan.

The company he represents has more than $30-million in third-party ABCP, and most of that is in its pension plans.

"I do have sympathy for these retail investors, but I also think that it is important to note that the institutional investors largely represent pension plans ... ," he said in an e-mail reply to questions. "If the restructuring plan fails and assets are sold at 50 cents on the dollar (if we are lucky), Canadian pension plans stand to lose well over $10-billion. That's in the pension plans of 'the average Joe,' " he wrote.

ABCP Conditions

The Bank of Canada laid out conditions yesterday for accepting bank-sponsored asset-backed commercial paper as collateral for loans to banks that need to raise short-term money.

Bank-sponsored paper is, for the most part, still trading, unlike the non-bank sector of the market, which is frozen and in the midst of a restructuring led by Purdy Crawford.

Nonetheless, the conditions for the loans are designed to keep the Bank of Canada from accepting any risky assets, a marked departure from the moves the U.S. Federal Reserve Board is making in the United States as it tries to solve the problems in the financial system.

Under the new rules, the Bank of Canada will only accept ABCP that has:

The highest-possible rating from two credit ratings companies.

Almost no exposure to "securitized" or repackaged assets.

Backup liquidity credit lines that have few restrictions on payouts.

A high degree of disclosure about underlying assets.

Boyd Erman


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#7) On April 02, 2008 at 1:24 AM, dwot (29.45) wrote:

And another:

Investor confusion reigns


Tuesday, April 01, 2008

CALGARY — The high-profile committee that's seeking investor support for its plan to salvage Canada's frozen $32-billion commercial paper market is bumping up against a troublesome, and potentially costly, barrier — investors just don't understand the thing.

The nearly 400-page document and accompanying slideshow that lay out details of the plan to swap the moribund paper for new bonds make it "way too complex," said Vladimir Salyzyn, a retired economics professor from the University of Alberta who now has roughly $900,000 from the sale of his farm stuck in third-party asset-backed commercial paper (ABCP).

"I've got a Bachelor of Commerce degree, I've got a PhD in economics. Maybe I'm getting a little senile with age, but not that much," the 78-year-old said with a smile following an investor meeting in Edmonton.

He walked away from the meeting still undecided about whether he will vote for the committee's plan.

Investors in Calgary had a similar reaction. "They've swamped us with a lot of information," said John Szpecht, a Calgary engineer, who holds about $25,000 of ABCP with his wife. "I'm trying to look for the pros and cons, and right now I'm not coming up with very many pros."

The committee's chair, Purdy Crawford, is hosting the investor meetings across Canada as he works to convince more than 1,800 individual holders who together have about $400-million of ABCP to vote in favour of the plan at a meeting that's currently scheduled for April 25. He needs a majority, or the plan to fix the whole $32-billion market will fail, causing what Mr. Crawford says will be major losses.

At the outset of yesterday morning's meeting in Edmonton, Mr. Crawford told investors that he'd heard from their counterparts in Toronto and Montreal on Monday — "with considerable justification probably" — that the documents are too complicated.

He noted the irony: The committee had been so focused on providing transparency to the market that it may have bogged the documents down in detail. Part of the reason the third-party ABCP market crumbled in August was that investors did not know exactly what the commercial paper was, and what assets lay underneath its esoteric structure. As Mr. Crawford's committee worked to restructure the sector, it tried to focus on gathering a plethora of information to give investors.

After meetings in Toronto and Montreal Monday, Mr. Crawford and his fellow presenters made a noticeable effort to simplify in Edmonton.

"We're going to do everything we can to continue to be accurate but to drop the footnotes and to try to deal with the bottom line," he said.

Mr. Crawford said the committee will arrange for a call next week, once people have had some time to digest the plan, where investors can submit questions and the appropriate person will call them back with answers.

While the vote on the plan is currently set for April 25, that date is flexible if the judge who is now overseeing the court-supervised restructuring process approves. Mr. Crawford has suggested he'd be willing to consider asking for an extension of the vote if investors feel they need more time to digest the plan.

In the meantime, Canaccord Capital Inc. is seeking a way for individual investors to get as close to 100 cents on the dollar back as possible.

About three-quarters of the 1,800 investors are people who bought the paper from Canaccord. But Canaccord argues it can't shoulder the whole load, and isn't solely responsible for the mess, which stemmed from a meltdown in world credit markets. That may mean that other players in the restructuring will have to add money to any buyout of paper from individual investors. "We'd like to see Canaccord step up to the plate and pick up their fair share," Wayne Duke, a retired oil and gas worker with just under $200,000 in ABCP.

The links 



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#8) On April 03, 2008 at 9:56 AM, dwot (29.45) wrote:

Teacher pension shortfall raises early-retirement questions


From Thursday's Globe and Mail

April 3, 2008 at 4:36 AM EDT

TORONTO — Ontario Education Minister Kathleen Wynne suggested yesterday that the early-retirement policy for the province's teachers should be reviewed in the wake of a multibillion-dollar shortfall in their pension plan. But she later backtracked, saying she was not going to speculate on coming talks between the government and teacher representatives.

The giant Ontario Teachers Pension Plan announced this week that it ended 2007 with a $12.7-billion shortfall, raising questions about how it will fund its obligations to retired teachers.

Teachers invests $108-billion in assets on behalf of 278,000 active and retired teachers in the province. The plan paid out $4-billion in pension benefits last year, double what it received in contributions.

The plan is managed by the Ontario government and the Ontario Teachers Federation. Ms. Wynne initially said yesterday that the managers would review a policy that allows teachers to retire when their age and years of service add up to 85.

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Teachers short by $12.7-billion 

"It's one of the things that the partners at the table have to talk about," she told reporters. "I'm not going to speculate on what the outcome of that conversation will be."

But Ms. Wynne later appeared to contradict herself by stressing that the government has no intention of reviewing the policy.

Asked by reporters whether the policy should be part of a broad review of the pension plan, she said: "I'm not taking a position on that. I'm not promoting that."

Opposition members accused her of ignoring the problem.

"I think the McGuinty government is trying to pretend a problem doesn't exist," New Democratic Party Leader Howard Hampton. The government faces two choices, he said. "They can increase the contribution amount or simply say teachers will have to work longer before they retire."

Progressive Conservative MPP Bob Runciman said the government can't "turn a blind eye" to the problem.

He said Ms. Wynne's initial comments suggesting that the retirement policy would be reviewed were the ones that made sense.

"She probably got her wrists slapped for giving an honest and straightforward response," he said.

Changing the policy would lead to a radical overhaul of the pension plan.

The policy was introduced by former premier Mike Harris in the mid-1990s as part of his Common Sense Revolution.

The rule was aimed at encouraging older teachers to retire and open up positions for younger, lower-paid replacements. The average retirement age for teachers in Ontario is 58.

Both the government and the federation must come up with a plan to eliminate the pension plan's shortfall by Sept. 30.

Making up the gap is more challenging due to the shrinking proportion of working teachers to retired ones. There are 1.6 working teachers for every pensioner, compared with 4-to-1 15 years ago.

As of next year, teachers will contribute 12 per cent of their gross pay to the pension plan. The government matches that level. Last year, it contributed $1.1-billion to the plan.

Maureen Davis, president of the federation, said in an interview yesterday that the 85 rule is bound to come up during the talks.

But she said she does not believe eliminating it is on the government's agenda.

"We're committed to resolving it together," Ms. Davis said. "At this stage, I can't speculate where these talks will bring us."


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