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How Secure Is Your Pension Really?

How Secure Is Your Pension Really?

By Susan Williams

Back in October, Sears Canada received approval to close their doors after 65 years of being a department store staple for Canadians.

Sears had been a pioneer for home shopping.

Through their catalog service, Canadians could flip through the pages of products and then just pick up the phone and place an order. As an added bonus to this service, there was the highly anticipated Christmas Wish Book that would arrive every holiday season. (I still remember spending hours pouring over all the toys that were showcased and dreaming of what I might get for Christmas that year.)

Sears was also an anchor store in so many malls across the country.

These large stores carried everything from clothing to appliances to tools. Often positioned in a prominent position at the end of the mall, the large Sears sign always shone brightly as a beacon as they welcomed you to their stores.

Sears Canada was also a major employer in Canada.

When it announced it’s closure,¬†approximately 12,000 employees (of which 3/4 were part-time) were going to lose their jobs. This number didn’t even include the 2,900 jobs that Sears Canada had previously eliminated prior to this announcement.

After 65 years in business, Sears Canada had become an institution in Canada.

It was a company that people believed was secure so you can imagine the surprise when it was discovered that it wasn’t.

As sad as this closing announcement was for the Sears employees, what also was extremely concerning was the impact that it may have on current and future retirees pension plans.

As it turns out, Sears Canada’s pension fund¬†was¬†underfunded.

What this meant was that Sears Canada’s employees may not receive the full retirement funds that they were planning on. And for the older employees and current retirees, they have very little runway (if any) to make up any shortfall.

This Sears Canada pension situation shone a very large light on the fact that even if you have a company pension plan, it may not be as secure as people expect it to be.

If a company faces financial difficulties or declares bankruptcy, this could cause significant problems for a company pension plan. In turn their employees may not receive all the money that they had planned on to fund their retirement.

In a post published by the CBC regarding pension safety, they stated the following regarding the Sears pension situation;

“…Retirees would become unsecured creditors who would have to line up behind secured creditors, like banks, to try to recoup that 19 per cent.

“If the secured creditors take all the money in the pool and there’s nothing left for unsecured creditors, then, unfortunately, they’d be out of luck,” says Goldsmith, with Samfiru Tumarkin LLP in Toronto.

Of course, Sears may successfully restructure and Throop (a Sears Canada employee) may eventually get her full pension.

But the situation is another reminder that sometimes there are no guarantees that the pension you are promised on paper is what you will actually wind up with in retirement.”

So, if you are completely counting on your company’s pension plan for your retirement, you may want to take a closer look into the details of how secure it really is.

As much as Sears Canada was once a beacon for department stores – it has now also become a beacon for what can also potentially happen to a company’s pension plan.

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Susan Williams is the Founder of Booming Encore. Being a Boomer herself, Susan loves to discover and share ways to live life to the fullest. She shares her experiences, observations and opinions on living life after 50 and tries to embrace Booming Encore's philosophy of making sure every day matters.