Defined benefits plans: Introduction
Many Canadians sleep well knowing that when they retire they’ll be well taken care of with their defined benefit pension plan and government pension programs. Defined benefits plans are the Cadillac of pension plans. They guarantee a set pension amount for life, regardless of how the plan performs.
Defined benefits plans sound great, don’t they? Employees from Sears, Nortel, Northstar Aerospace and others thought so too. That is until corporate bankruptcy turned their dream retirement into a nightmare.
Defined benefits plans: Should you be worried about your Defined Benefit Pension Plan?
“At the end of the day, your (defined benefit) pension is only as good as the amount of assets in the fund. So you better hope it’s fully funded”, says the lawyer Mark Zigler of Koskie Minsky.
The problem is that low returns from low-interest rates and high costs due to retirees living longer have made it increasingly difficult to fund defined benefits plans. In Ontario, under funding affects 30% of defined benefits plans. This is according to the latest report by the Financial Services Commission of Ontario (FSCO). The same situation exists in Quebec. According to data by Retraite Québec (RQ), 29% of plans are running deficits.
The implicit assumption is that the employers who sponsor these plans will remain solvent or that the plans don’t cease to exist.
Defined benefits plans: What happens to your defined benefit pension plan if the company you work for goes bankrupt?
If the company becomes insolvent and the pension plan is underfunded, this will expose retirees to the pension losses. Under Canadian law, retirees are treated like unsecured creditors. This means that the retirees’ claims will only be considered after those of secured creditors like banks.
If you’re fortunate enough to have a defined benefit pension plan, hopefully it’s fully funded. Unfortunately there are many retirees whose hopes and dreams were dashed when companies they worked for went bankrupt.
Defined benefits plans: What if your debt payments are greater than your retirement income?
With a mindset that they had a well-funded retirement, there are seniors who are accumulating debt they can’t hope to repay. If you’re being strangled by debt contact Ira Smith Trustee & Receiver Inc. We can’t give you back defined benefits plans. However, we will help you conquer debt. With our help, you will get back your peace of mind, Starting Over, Starting Now. Give us a call today.
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