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In 1998 Watson Wyatt Canada conducted a Supplementary Employee Retirement Plan (SERP) survey of 458 organizations across Canada to determine the adequacy of the retirement plans provided to their top employees.
The findings of the SERP survey-which was the largest survey of its kind ever undertaken in this country-showed that many salaried employees in Canada will not be getting the pensions they expect. This is because one in eight salaried employees is currently affected by the limits on tax-sheltered retirement savings imposed by Revenue Canada. In seven years this will be one in four - a full 25 per cent of all salaried employees will not get the pension they assume they will be.
The issue cuts across all industries and sizes of companies, but the smallest employers appear to face the biggest problems. What's critical is that many companies are either not aware of the magnitude of the problem or are doing nothing about it.
What exactly is a SERP? It's a non-registered pension arrangement commonly used to top up registered plan benefits. Historically, SERPs were offered only to top executives - the top wage earners in the organization -but now there is a trend to offering SERPs to a broader base of employees, and no wonder.
Back in 1976 an executive earning a salary of $85,000 a year could have expected a pension of 70 per cent of his salary upon retiring after 35 years of service. In 1976 a salary of $85,000 was seven times the average wage. However, Revenue Canada limits on pension plans haven't changed since that time. So, if we can assume that the executive's salary has increased at a modest three per cent a year from 1976 to today, the defined pension limit has effectively been frozen. And that pension, as a percentage of income, has dropped from 70 per cent in 1976 to 37 per cent today and it will drop even more - to 30 per cent in 2005.
We can look at this another way, as straight income. If the defined benefit accrual limit under the Income Tax Act had kept pace with inflation over the past two decades, it would now affect only those employees who are earning about $250,000 a year.
"Employees think...