‘I took a $10,000 pay cut to stay with my pension,’ says client

A version of this story appeared on benefitscanada.com.

When pension plans and benefits change, it’s important for companies to remain upfront about why. They also need to give ample time, where possible, for people to make decisions about their financial future.

But if that doesn’t happen, what are some of the pitfalls? And, how can you help clients?

In the case of an employee at an Ontario public health unit who had decades of service, she says she didn’t receive clear communication when her employer undertook an organizational change. She had heard for decades that her department within the health unit should move to a different organization. But nothing happened until a new director came on board and set the divestment process in motion.

Once that process began, it didn’t go smoothly: the health unit was told to get rid of the department, the new organization didn’t necessarily have roles for them and nobody from human resources or the union was available to answer the affected employees’ questions.

“In that whole process, pensions were a big issue,” says the employee, who asked to remain anonymous.

Ontario’s public health workers participate in the Ontario Municipal Employees’ Retirement System, and the employee in question had been contributing to the defined benefit plan for decades. But she hadn’t received any recent education on her pension plan and didn’t consider that the new organization only offered a group registered retirement savings plan.

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While one of her colleagues kept prodding her to examine the differences in the organizations’ retirement packages, the employee was unsure of what to do.

“It wasn’t until I got outside advice from someone who works in investments and he scripted questions for me to send to OMERS [that I felt less anxious],” she says. “He said, ‘I’ll do a three-way call with you. These are the answers we need.’ So we got some information that way.”

The employee recalls that the whole process was unsettling. She had to pay the investment advisor and she wasn’t getting much sleep. “I’m thinking, ‘What does this mean?’ I don’t have that kind of financial brain, nor do I have the interest. I just want somebody who’s working for me.”

In the end, just before Christmas, employees got word bumping rights were actually in effect. That is, senior staff who found their positions were on the chopping block could move to a more junior role and stay with the health unit.

But that decision would cause the more junior employees to lose their jobs.

“It wasn’t a nice situation,” says the employee. “In the end, I was very thankful to be able to stay here with my pension. I took a $10,000 pay cut to stay with my pension. And the upside of it is I learned I love public health.”

Read: Take the pension or commuted value?

Looking back, the employee would have wanted better communication and financial education from the health unit, the union and the pension plan.

Employer best practices

It’s never easy telling employees their pension benefits are getting worse, whether that’s because of a merger, a sale or simply a cost-savings measure. But when it happens, employers should consider several tactics to minimize both employee distress and the possibility of a lawsuit.

“They need to be aware of potential constructive dismissal [litigation] that could occur if you significantly alter pay or benefits or job description or anything of a material change,” says Jeff Pekar, senior communications and change management consultant at Willis Towers Watson in Toronto.

And most of the time, he adds, moving employees from a defined benefit plan to a defined contribution plan counts as a considerable change in benefits.

Some employers inform their staff of such a change two years in advance, says Pekar. That would give the employees ample time to look for other jobs if the new working conditions weren’t suitable. Alternatively, an employer could offer transition payments.

“If the company wants to make the announcement now and not give a lot of notice, they might say, ‘OK, this is worth a few thousand dollars to you and another amount to someone else,” says Pekar. “They can give some sort of financial compensation instead of that notice at times.”

It’s important for employers to remain upfront about why a pension plan is changing, whether that’s to reduce volatility, harmonize two companies’ plans or save money. “I hate the word spin,” says Pekar. “The messaging should not be spun to mislead employees about the truth.”

Employers should also focus on the overall rewards program and point out unexpected benefits such as extra vacation time or more opportunities for professional development. In addition, some changes offer benefits employees may not have thought about.

“If it’s going from a defined benefit to a defined contribution plan, perhaps there’s a message around flexibility or taking control of your future or building wealth,” says Pekar. “If the company has some sort of matching in the DC program, there could be a lot of good messaging around taking advantage of the company match and building their wealth.”

One thing Pekar advises against is employers paying for employee sessions with a financial planner. The risk of liability if the advice leads to poor outcomes is too great. Instead, he suggests companies offer general education seminars or online training sessions, or that they simply recommend reputable advisors but not pay for them.

Read: What sixtysomethings expect from their advisors

So, it seems any clients who are going through organizational changes at work would likely be in need of your help, and you’ll want to offer as early as possible.

As for OMERS, the employee mentioned above says the pension plan does offer information sessions. “I think most recently, they’ve been [to a town an hour from the health unit]. One of the girls here travelled up to go to one of their information sessions. That was shortly after we transferred here and, frankly, I was just too tired.”

In an email to Benefits Canada, OMERS spokesperson Neil Hrab noted that in 2016, staff responded to more than 200,000 calls from plan members and delivered 2,400 presentations. He also noted the plan’s online tool generated more than 125,000 pension estimates and that plan member satisfaction rate was 92%.

“We are very glad that our member sees the value in their OMERS defined benefit pension,” wrote Hrab. “We welcome all enquiries from OMERS members by phone, email, or mail regarding the OMERS pension plan and we are always ready to provide them with accurate information as requested. While we provide information about the plan, we encourage members to seek independent advice to support their own personal decisions as we do not make recommendations or provide individual retirement planning advice.”

In a few years, the public health employee will qualify for an unreduced early retirement pension. She doesn’t yet know if she wants to retire as soon as she’s eligible but she’s sure of one thing: she’ll sit down with an independent advisor to get her numbers straight.