My latest MoneySense Retired Money column just went up and covers the subject of a Pension Guarantee Fund for employer-sponsored Defined Benefit pension plans. The United States and United Kingdom both have versions of these but as the piece points out, the only Canadian province to have one is Ontario.
Click on the highlighted headline to access the full article: What to know about the Pension Benefits Guarantee Fund.
Earlier this year, the Ontario Government announced that its Ontario Pension Benefits Guarantee Fund (PBGF for short) was boosting the amount of guaranteed pension (should a plan go bust) from the previous $1,000 a month to $1,500 a month. But as I point out, depending on how a plan is funded, because of partial payouts in the case of plan insolvency, this actually means pensioners are protected for somewhat more than $1,500 a month.
So, according to my sources, in the case of a pension fund that’s 50% funded on windup because of a bankrupt plan sponsor, someone with a $3,000 monthly pension would receive $1,500 from the funded part of the $3,000 pension, plus $750 from the PBGF, which tops up the unfunded part of the first half of the pension.
Established in 1980, Ontario’s PBGF covers more than 1,500 DB plans and 1.1 million members in the province. Participation is mandatory for most DB plans registered in Ontario. As the article notes, the amount of protection is somewhat less than in the US and UK: the US one covers a whopping $5,000 a month. Even so, $1,500 a month sure beats the non-existent guarantees of the other nine Canadian provinces.
What if your pension is not covered by a PBGF?
One source in the article suggests that those in pension plans carefully scrutinize the solvency of their employers’ plans. And if you’re in a DB plan and don’t have any PBGF, you might consider taking the commuted value and rolling it into an RRSP or equivalent vehicle, where you’d have more control over the fate of your retirement funds.