To the Editor:
The current "Detroit" pension matter could easily happen here. Canada tends to follow what the USA does.
What I find surprising is how many people with corporate pensions dismiss out of hand any thought that the companies they formerly worked for and that are now managing their pension funds could default.
One should always keep in mind that pension funds managed by companies are often not separate funds, but are kept in general revenues and used for whatever the company wants to use the money for until its needed for paying out pensions. It's a form of legalized "Ponzi scheme." Borrow from the future to pay current obligations.
Here's how it works. As part of a work contract between employees and a company, the company collects pension contributions from employees, matches those contributions, and records the overall contributions in its books. The money, however, is often kept in the company's general revenues or another account.
However, the money doesn't just sit in the account(s). If it (or parts of it) is not needed to pay current pensions, the company can use (borrow) it certain expenses, i.e. for its day to day operations, for capital investments (equipment, buildings land, etc.), or for collateral to borrow against. Simply put, the company can either borrow the pension money or use it as security to borrow money. All the company has to do is pay back the money when it's needed for current pension obligations. It has to stay at least one step ahead of the wolf.
However, in many situations there's virtually no independent oversight about companies' current and future obligations and capacity to fund pension obligations. If the company gets into trouble and can't pay back what it has taken from pension obligations, guess what? A "Detroit" scenario.
Then, a court or another administrative or government body in a community where many have smaller or no pensions, or are otherwise worse off than those on pensions, will have strong support from the public to cancel the company's or government's pension obligations. Although a more remote possibility, this could also happen to government pensions.
One wonders about the City of Regina that has a multi-tens of millions pension fund shortfall? Can you see Regina tax payers accepting a huge tax increase if the City of Regina has to come up with tens of millions to fund its pension obligations over a short period of time? How about during an economic downturn, should Regina or Saskatchewan have such?
This is just another example of members of the public living in a "ought-to-be" world instead of a world based on reality. It's like a pedestrian walking across a busy street in a cross walk. The vehicles are supposed to stop, ought to stop and should stop for the pedestrian. But realistically, the pedestrian should proceed carefully on the basis that vehicles don't always stop, and if they get hit by a 3,000 pound vehicle, they will be realistically either badly injured or killed. "Ought to" will have nothing to do with that.
Dr. Dennis Hall, Saskatoon, SK.
