(November 21 – 11:55 ET) – Many employees retiring today will receive a smaller portion of their total pay as pension benefits than employees who retired 25 years ago according to a recent survey conducted by Watson Wyatt Canada.

One out of every six salaried employees in Canada could be affected by limits imposed by the Income Tax Act on retirement benefits from registered plans. This is up from one in eight just two years and expected to rise to one in four by the year 2005.

“Supplemental Employee Retirement Plans (SERPs) effectively top up the registered plan benefit over and above the government limits and the need for them is now critical. At one point this was an issue for executives only, now it encompasses employees at all levels. This situation will only intensify as baby boomers retire and the government still fails to take action,” says Patrick Longhurst, Senior Consultant, Watson Wyatt.

According to the survey, only slightly more than half of Canadian organizations offer some form of SERPs. Of these, only 37% make them available to all employees affected by the government limits. While the limits are different depending on the type of registered pension plan, some limits have been unchanged since 1976.

Watson Wyatt Canada says that in 1976, senior executives earning $50,000 could have received a pension that replaced 70% of their income after 35 years of service. Today, an executive at the same level, now earning $200,000, would receive a replacement income of only 30% from a similar plan.

By comparison, an executive in the United States with the same pension plan and earning the equivalent of $200,000 (Cdn) would be well under the limits and could receive a full 70% replacement income. A similar executive in the U.K. would also be well under the U.K. limits.

“Even employees earning $65,000 today may find their pensions affected by the time they retire,” says Longhurst. “Given the current political and economic environment, it is distressing to find that many organizations fail to utilize SERPs to overcome these limitations and to provide for competitive compensation programs and adequate retirement income.”

As to why SERPs are not offered, 28% of organizations without a SERP say they don’t have one because they didn’t know that they could or were uncertain how to implement it. Among organizations without a SERP, cost was cited as the biggest factor by 42%, which is up from 29% who said this in the 1998 survey.

The SERP Survey, which was conducted in 1998 and repeated in the spring of 2000, included 430 organizations representing a broad cross-section of industries and organizations of all sizes across Canada.
-IE Staff