Most Canadian Executives have good reason to want to fund, or at least secure their Supplemental Executive Retirement Plans (SERPs).
In this age of uncertainty, it makes sense for executives to want to secure their unsecured SERP Promise. With the global financial crisis, Quantitative Easing ad infinitum, parabolic US spending/debt, US flirtation with debt default and the demise of USD hegemony, the RoboSigning and LIBOR Scandals, the rise of the total surveillance state, and black swan events now commonplace, it just makes sense.
Executive Compensation Under Siege
Executive compensation has been under siege by the press, activist shareholder groups and proxy solicitation firms along with other stakeholders, including utility ratepayers in particular.
SERPs have recently suffered a legal blow from the Supreme Court of Canada. In Sun Indalex Finance, LLC v. United Steelworkers, (“Indalex”), The Supreme Court ruled that SERP members were unsecured creditors of the firm, ranking behind secured creditors in CCAA insolvency proceedings. Executive SERP members lost supplemental pension entitlements. Grant Forest Products executive SERP members recently suffered a similar fate.
Securing the SERP Promise
Its all fun and games until someone loses their supplemental pension benefits.
There are many legitimate reasons why Executive SERP members might want to fund and secure their SERP promise. It does not necessarily mean they believe the organization might not be a going concern, or be unable to meet its obligations.
The Indalex SERP was underfunded and unsecured. In his Affidavit, Keith Carruthers, a former division President and Indalex employee of 27 years, describes how he had expressed concern about the security of the Supplemental Pension Plan. After Indalex entered CCAA proceedings, Carruthers and the rest of the Executive Plan Members lost 100% of their SERP entitlements, and up to 80% of their total pension benefits.
The Indalex decision has made unsecured Executive SERP members and all DB Registered Pension Plan members more vulnerable in insolvency proceedings.
SERPs are real obligations of the Corporation to the C-Suite and executive SERP members, as are DB Pension Plan obligations. Most SERPs in Canada are unfunded and unsecured, representing little more than a promise.
As we are witnessing a steady stream of large scale financial implosions, many private and public sector/sovereign entities appear poised to renege on their pension promises. Motor City is one of the more notable recent slow motion car crashes to hit the wall.
In Canada, C-Suite and Executive SERP Members would be wise to buckle-up.