I'm not sure which was more gratifying that spring evening in 1974, the baseball pitching dual I was involved in to clinch our spot in the playoffs, or the unsupervised aerial biking afterward in the park behind the diamond. The latter was more ominous to be sure.
City work crews had dumped a couple of large loads of sawdust behind the ballpark at the foot of a long grassy hill. It was an invitation to all thrill-seeking boys whose moms and dads weren't there to know better.
The sawdust heap made a perfect jump, and allowed for a soft landing which, with each successive attempt, fed our courage to approach the hill with greater acceleration and put more effort into each launch.
On my final attempt, I rode to the very top of the hill for my approach, managing to gather enough speed to get the bike into high gear. The spring in the now compacted material seemed to catapult me gracefully into the air. (Does time actually slow down when an accident is about to happen, or is it just that we regret the accident later and dwell over and over on the minutia of its unfolding?) I felt suspended in flight, and vaguely recall shouting in slow motion to a friend; "Hey John! I can see your house from here!"
I had too much air time, and the bike began to somersault forward. Off balance, I attempted to right my two-wheeled aircraft, but the front wheel landing at an awkward angle. One foot slipped off its pedal and I lurched forward, crashing at full speed.
I don't know why boys' bikes have that crossbar right... there. The soft sawdust landing did little to protect me from the sort of gender-specific wounds common to boys on bikes. Thirty-eight years later, I still cringe at the thought.
Just as our focus might get more vivid at the launch point of a dangerous bike jump, our working life might seem like a long gentle hill at age thirty, but somewhere around age forty-five we begin to see detail in high definition. For some of us, this is the first time we pay serious attention to our company pension plan.
In a Defined Benefit (DB) pension plan, the amount of pension that the member will receive in retirement is guaranteed and "defined" as a fixed amount per year in retirement, payable until death, usually calculated using a salary-related formula. However, as with any guarantee, the capacity of the guarantor is everything. Under certain circumstances, it is possible that the amount of the actual DB pension received in the future could be smaller than expected due to the employer's inability to meet its pension obligations.
If the investments in the pension fund have not performed well since the last actuarial valuation and the accrued pensions payable have not substantially decreased, it's possible for the pension plan to go into a deficit. A plan deficit generally means that the employer has to make a greater cash flow commitment to the DB plan over the next three years than originally expected.
What if the company can't afford to make up the pension deficit?
Employees of companies experiencing financial difficulties often ask if their pension will be affected if the company goes bankrupt. In most cases, the pension that has accrued to date is not directly affected. Pension funds are generally not considered an asset of the company, and federal or provincial pension legislation restricts creditors of the employer from seizing the pension fund assets to satisfy debts. However, if a company goes bankrupt at a time when there is a pension deficit and the company has no resources to make up the deficit, then pensioners may well see a reduction in their promised DB pension.
As you approach your departure from the working world, it will be important to sharpen your focus, and consider carefully the finer details of your pension plan. The alternative is too painful to ignore.
Mark Ryan is an advisor with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected].
