Thursday, September 16, 2010

Ontario Finance Minister rejects FSM. Pension will wind up in annuities

The following story was published in the Ottawa Citizen today.
Looks like we have no choice according to this story.

Finance minister Dwight Duncan ended months of uncertainty over the future of Nortel's $2.5-billion pension plan on Wednesday, when he rejected a request by the roughly 18,000 pensioners to place the funds with private investors.

Instead, the heavily underfunded plan will be wound up and turned into annuities.

A government-appointed supervisor begins the process Oct. 1.

The decision angered a leader of the company's main pension group, who had come to Queen's Park with about 1,200 former employees to lobby the government.

"I am dismayed," said Don Sproule, chairman of Nortel Retirees and Former Employees Protection Canada.

"Quite frankly, the 2011 election begins now.

"We have 18,000 Nortel pensioners (10,260 based in Ontario) who are going to come forward and not let them forget. Minister Duncan has been ... running out the clock, and, if this is his position, they will bear the consequences."

Pensioners had hoped to try to recover some of the roughly $1 billion missing in their plan through investments. They believe the cost of purchasing annuities, contracts with financial institutions that provide fixed payments, will amount to 10-12 per cent.

The annuity market is at historic lows and the pressure of the Nortel funds coming onstream will reduce returns further.

"We are not going to get a fair deal when annuities are purchased," Sproule said.

Duncan decided the risk of private placement was too great. He emerged from the legislature just moments before the rally began and officially declined the request.

"We are not proceeding," he told reporters. "This is the policy of the government."

A number of factors were considered, he said, including the fact the group had failed to submit a formal plan. Federal laws would also need to be changed for the proposal to be accepted.

Duncan said similar efforts in Britain had ended badly.

"This is a shining example of how supposedly bullet-proof pensions can be mismanaged, and what they're essentially proposing is permission to invest in riskier assets," he said. "So we've decided that it's best not to take a riskier road on a pension that's already obviously been horribly mismanaged."

Sproule said Duncan had discouraged a "creative" solution from the former telecom employees from the beginning.

"They've got their heads stuck in the sand," he said. "They just weren't listening."

Roughly 25 buses transported ex-Nortel workers from London, Belleville, Brampton and the Toronto area. One bus came from Ottawa.

The aging workers carried a variety of signs, including "Annuities Suck" and "Your Pension Could Be Next."

Conservative MPP Norm Sterling attacked Duncan for his decision.

"This is their money," the MPP for Carleton-Mississippi Mills said. "The $2.5 billion is their money, not the government's money. We believe that the government owes an obligation to justify their rejection of this plan."

Sterling also accused Duncan of exaggerating division among the group. Finance officials claimed 400 disabled former Nortel workers opposed the move to private investment. That group actually totaled 37 dissenters.

"Let's not misrepresent the support that they have for your plan," he said.

A government-appointed supervisor will take control Oct. 1. It's estimated the supervisor will take up to six months to calculate the final value of the fund.

It is estimated to currently be funded at roughly 70 per cent.

Finance officials believe with the help of a government backstop, known as the Pension Benefits Guarantee Fund, pensions will eventually be funded at close to 90 per cent.

© Copyright (c) The Ottawa Citizen

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