But who’s going to explain them to you? Or maybe more importantly, who’s going to explain whether the changes mean anything to you?
You can read the current text of the amendments here. You can read a more layperson-friendly analysis here (requires subscription to HRinfodesk). Remember, these are just the basic changes. The more difficult ones will only come after these ones pass into law.
Let’s not forget, too, that the provinces and the federal government are jumping on the national pension reform train. One major aim of those talks is to extend pension coverage to working Canadians without a plan. You can be sure that any move in that direction will have consequences for small and medium-sized businesses.
According to Statistics Canada, in 2008 very small registered pension plans (fewer than 10 members) accounted for more than half of all plans, but less than one percent of membership. Those numbers are actually significantly larger than in 2000, when very small plans made up 35 percent of the pension landscape and 0.3 percent of membership. Also in 2000, small plans (fewer than 100 members) accounted for 77 percent of plans, but only five percent of members. That means that smaller Canadian businesses are certainly willing to provide some sort of pension plan to their employees; but also that pension reform disproportionately affects large businesses with large plans.
I can’t say whether that’s good or bad, but it seems to leave a lot of people out of the debate. Catherine Swift, president of the Canadian Federation of Independent Business, believes that, “the only realistic options available for small businesses is group RRSP or profit-sharing plans”, because of the cost and general difficulty associated with implementing a defined contribution plan, and no employer is implementing a new defined benefit plan these days. There may be nothing wrong with a group RRSP or a profit-sharing plan, but in a competitive employment landscape, prospective employees will often choose the greater benefit, whether real or perceived.
Of course, this assumes that a small or medium employer wants to offer its employees a pension plan in the first place. Obviously (according to StatsCan) thousands do, but thousands more do not. The Globe and Mail reports that 75 percent of Canadian private-sector employees have no employer pension coverage at all. Many of these work at small and medium-sized businesses that have little incentive to offer a pension plan, even if they would like to.
One proposed solution to the limitation that small businesses face is the multi-employer pension plan, which would allow several employers to pool their resources (mainly their employees) and create a plan they would not be able to fund and administer otherwise. This is perhaps the most democratic and market-oriented option, and maybe the quickest to implement. Other choices include expansions to the Canada Pension Plan and simply leaving things as they are.
Any of these options (besides the last one!) should make administering a pension plan easier and less costly for smaller businesses, which presumably are the main impediments. At the same time, removing impediments is not the same as adding incentives. Many business owners will still want to know why they should bother offering a pension plan to their employees; that is, why should they take on an expense and administrative burden that they do not currently have?
In other words, if the government wants to get more smaller businesses on the pension train, the question that they should ask is not just, how can we make it easier for entrepreneurs to provide a pension plan for their employees? But also, how can we make pension plans more attractive to entrepreneurs?
I would say that might be a more difficult task than simply reforming the pension system—unless the reform involves mandatory inclusion.
As for explanation, you’re probably best off talking to an expert, or consulting The Human Resources Advisor from First Reference.
Or maybe you can take comfort in a recent report by economic policy expert Jack Mintz: “Pension troubles not so bad, report author assures federal government”
Let me know what you think of financial education and the upcoming (and proposed) pension reforms.
First Reference Human Resources and Compliance Assistant Editor