SaskTel Defined Benefit Pension Plan

After much soul searching. I decided to switch pension plans. From the defined benefit plan to the the defined contribution plan. I want to own my plan, rather than be a renter. I don't feel I got fair value when I switched.

sasktel_defined_benefit_pension_.htm

SaskTel Defined Benefit Pension Plan (not the PEPP or defined contribution plan)

Sasktel has about 5,000 employees, about 500 are in the Sasktel pension plan, the other 4500 are in the PEPP. Those in the PEPP have it good. Those in the Sasktel pension plan are not so lucky.

There are some characteristics of this plan.

The plan should provide the best possible pension for the beneficiaries and that at no time should the sponsor remove funds from the plan. SaskTel removed $35 million dollars from the plan with the unions approval. It seems that the sponsor would not allow pension improvements unless the union allowed the company to remove $35 million from the plan. When I signed up for the plan I was not told the company would dip into the plan from time to time. Also the company insisted on an agreement that when everyone in the plan is dead, they get the remaining funds. This seems contrary to common sense, that any surplus must go to the beneficiaries.

The company took a contribution holiday in 1995, the money saved was given in part to all employees even those not in this plan in the form of a raise. The union also approved this. The company more recently is adding extra contributions to the plan due to a deficit.

In the case of the University of Saskatchewan Faculty the surplus in the plan went to the employees.

Although SaskTel defined benefit pension plan returned 14% last year, the company only showed an increase of 7% on my year end statement. The actual return of pension is ignored, some years the pension plan has produced a return as low as -5% and as high as 22%. The 7% return is low, considering the stock market on average produces a return of at least 10%, so over the course of a career the employee is getting cheated out of a huge amount of money. The PEPP has produced returns of greater than 11% and nearly 12% since inception in 1977. Over a 35 years the 7% return would amount to less than half of an actual return. In the case of an employee quitting his job before retirement, I am not sure what would happen to the difference, wether the company would take it, or the money would remain in the plan.

Example

34 year man in the PEPP: 4% employee contribution plus 6% employer contribution gets $680,000.00

34 year man in the Sasktel Pension Plan: employee contribution of 7% plus employer contribution of 7% gets $400,000.00

the 34 year man should get $960,000.00. He is getting $560,000.00 less than he should be getting. In my opinion.

Of course if SaskTel is concerned about pension risk then they should just offer to buy out the members of the defined benefit pension plans at the fair value based on the true returns of the investments, not based on the 7% fictitious return on investment. This way they would get out at break even. However it is my belief that they have there eyes on benefiting from the pension plan.

The school teachers in Saskatchewan have full inflation protection. The SaskTel employees have only the first 2% of inflation. The Sask Power workers have 70% inflation protection so in years when inflation is 3% they do better than Sasktel retirees.

The Ontario Teachers' Pension Plan seem to have aggressive fund managers based on news reports. The Ontario Teachers' Pension Plan has both the employer and employees as joint sponsors who share ownership of any surpluses as well as responsibility for any deficits. I do not have information on exactly how the sharing takes place. I think in that the SaskTel Pension Plan where the company takes everything it makes above the 7% level is unfair to an employee who quits or is fired from his job prior to retirement. The company likely will benefit by hundreds of thousands of dollars when this happens. I would like to suggest that if the pension plan earns 14% and the company takes 7% for themselves and only 7% goes to the employee this is a rather high fee for managing the pension funds. SaskTel does not treat the Defined Contribution Plan in this manner. In fact Sasktel is not allowed to monkey with the money in the PEPP. They can and do (with the unions approval) (as we know using what might be considered unethical tactics) monkey with the money in the Sasktel pension plan. An examples of unethical practices are 1. When there was a $70 million surplus Sssktel refused to allow pension plan improvemnts worth $35 million unless they could have have the other $35 million from the plan. Sasktel took a contribution holiday and gave the saved money to all employees. Also Sasktel refused to allow the $35 million in pension improvements unless they could have all surplus money when the last person was dead. Lorne Calvert should not allow this. Sasktel tries to portray themselves as a good ethical company but this is not good or ethical.

In the case of a University of Saskatchewan Union, the members received cheques in varying amounts when there was a surplus in the pension plan.

I was never told there would be an employer "contribution holiday" from time to time.

I was told that a person could not retire until age 60 if they were in the defined contribution plan. This has since changed.

It seems their have been huge improvements to the defined contribution plan, but minimal improvements to the defined benefit plan Those in the PEPP get the bridging that those in the old plan, plus they also get an additional payout when they retire. I believe this is unethical also.

Why are the corporations eyeing up the defined benefit plans to pilfer them? Possibly because the guys doing the pilfering are in the defined contribution plans.

Some companies have stated that they wish to receive a portion of the surplus in the defined benefit plan or they will mismanage the plan and run deficits. This is criminal and the companies threatening this should have there CEO's put in jail. You don't hear them saying they want a portion of the defined contribution plan or they will mismanage it.

The companies have the incentive to argue against any defined benefit pension plan improvements, because they would get a portion of any surplus.

The way I see it SaskTel has nearly one million dollars of my money, (although they claim they only have $400,000) but they will only pay a pension of about $39,000 per year which reduces to $29,000.00 per year at age 65, based on the formula. Considering the stock market normally produces a return of greater than 10% they should be able to pay a pension of perhaps $90,000 per year and still have money for capital appreciation of the plan.

It appears that Sasktel makes very low guarantees (7% return on investment instead of actual) (2% inflation protection instead of actual) in the defined benefit pension plan and union does not challenge them on that.

Those in the defined benefits pension plan have contributed 7% of their wages. Those in the defined contribution plan have contributed 4% of their wages for their pension plan.

Something has to be done for those in the defined benefit plan. The only reasonable thing is to close down the defined benefit plan and give transfer all employees to the PEPP.

How can the company justify that the ERP incentives are better in the new pension plan (PEPP) than the old pension plan (Sasktel)? I have heard some people say that because the old plan is a guaranteed plan then the ERP incentives are lower in that plan. But of course if a person retires from the old plan without an ERP then it is still a guaranteed plan so that is an unrelated matter that should have no effect on the ERP in my opinion. The guarantee is not part of the ERP it is entirely something separate.

links

If there are any errors or if you would like to contact me. email me at boxing@sasktel.net

http://www.ocufa.on.ca/briefs/pension.pdf

http://www.benefitscanada.com/issuearchive/sept2005/dbreport-09-2005.pdf

http://www.bankofcanada.ca/en/speeches/2005/sp05-14.html

http://www.piacweb.org/files/bank_of_canada_dodge_on_db_plans_feb_7_06.pdf

http://www.cbc.ca/cp/business/051002/b100208.html

http://www.cbc.ca/cp/business/051109/b1109110.html

http://www.caubo.ca/annual_conf/presentations/2006/2006_Concurrent_Sessions/Health%20of%20Defined%20Benefit%20Plans_by_Michel%20St-Germain.ppt

http://www.contingencies.org/julaug06/actuarys_new_clothes_0706.asp

http://www.teamstersrail.ca/news.php?id=165&lang=en

http://www.belltelretirees.org/PlanSponsor7_29_04.htm