An Open Letter to Canada's Finance Minister

Now that the personal stuff is largely out of the way we can get back to looking at stocks and ranting about the investment industry in general and the stock market in particular.

Yesterday was a decent day for me. CLRK woke up for 53 cents to close at $17.55 and SCUR was off a little bit at $6.70 down five cents. CLRK is slowly starting to show some potential and it’s only a matter of time before the market realizes the gold mine that is Color Kinetics. I will give SCUR another day or two before I can determine if I should keep my target on that stock or dump it. Two stocks that I have put on my radar are MFLX, which I mentioned in previous posts and WIRE. WIRE is the symbol for Encore Wire a manufacturer of residential and industrial electrical wiring. Their main market is the southern US where they are benefiting from the reconstruction efforts after last years hurricanes. I look at each of these companies and let you know my opinion in my next post.

Now I want to talk about something near and dear to me. In Canada when you leave a company with a pension, you can have your share of the pension funds deposited into a Registered Retirement Account until you decide to retire. In the past at the provincial level, this money had to be kept in separate “locked in” retirement accounts. Now if you tend to change jobs on average every five years, you can end up having five or six separate locked in retirement accounts. Naturally, all these accounts have fees associated with them. And to make things even sweeter for the financial institutions, they were allowed to charge yearly fees for the administration of these accounts. Most charge fees over $100 per year. People that change jobs more frequently, tend to have more of these accounts with smaller balances. The end result is that these smaller accounts become eroded due to proportionally high fees. Throw in some losses in the markets and commissions and the accounts can head towards zero in a hurry.

The provincial governments looked at the situation and realized that this was not good for the average working people. The provincial governments decided that they need to relax these rules and allow people to place these funds into their regular Registered Retirement Accounts. This allowed people to consolidate accounts. It also had the added benefit of allowing people, who were facing financial hardship to access the funds by deregistering some of these previously locked in funds. The provinces recognized that these locked in funds were the account holders and they really had no business in telling the account holders how to manage their money or what to do with their money.

Not so for the federal government. In Canada, any company regulated by the federal government also has their pension regulated by the federal government. And the federal government says that when you leave a federally regulated company, your pension money must remain in a separate locked in retirement account and you are not allowed to access those funds or move them to a non locked in account under any circumstances. They somehow feel the need to dictate to people how they can and what they can do with money that is rightfully theirs. Through these regulations, this experiment, and eventually this blog was born. The money used to trade is sitting in a locked in account. Since I am unable to touch it, and it is not a large amount, I realized that it will just be eroded over time. So I decided to throw caution into the wind and see if I can either make a lot of money or lose it all. What difference does it make? The federal government says it’s not mine anyway. At least I can’t do with it as I see fit.

A few weeks ago I sent a letter to the Finance Minister (In Canada, he’s referred to an Honorable, but frankly I can’t see what’s honorable about any politician) asking him to address this issue. All I got was the standard patronizing reply:On behalf of the Minister of Finance, the Honourable James M. Flaherty, this is to acknowledge receipt of your correspondence of August 28, 2006.Please be assured that your comments will be brought to the Minister's attention as soon as possible. Departmental Correspondence Unit
Since then I haven’t heard back from his office at all. Now perhaps if I give a sizeable donation to the party, I would get a response. I huge donation may even get me a change in some legislation. Well my distaste and dislike for politicians has only been reaffirmed from this experience. I can most definitely assure you that if it was to the Finance Ministers benefit the legislation would be changed, but because it benefits the ministers friends who run the financial institutions, the legislation will never change.

Once again the little guy is screwed. Bend over here comes your government with a big smile on its face.

Below is the letter I sent:

Hon. Jim Flaherty,

I am writing to you to request a change in the legislation pertaining to locked-in RRSP's. I recommend we change the locked-in RRSP legislation to mirror the legislation in place for normal RRSP’s. I find the legislation onerous and unfair to individuals who need access to the funds today. The failure of the Department of Finance to address the anachronism and unfairness of the Locked-in RRSP is not only unfortunate and short-sighted, but it fails to recognize the hardship the present system puts on many people who have Locked-in RRSPs.

I have discovered in researching locked-in RRSP’s it appears a large number of Canadians are burdened with this restriction. It creates unnecessary financial hardship when it should not. This change would simplify the legislation and could be easily accomplished without creating new legislation. At the same time this would increase the tax revenue base. This will also provide individuals with the option to access funds that rightfully belong to them.

Also, the rigid rules surrounding locked-in plans means that if people want to consolidate their investment portfolios, by combining their RRSP with their Locked-in RRSP, they cannot and are not allowed to. This makes for very inefficient and ineffective investing, as well as it increases investing costs. So on the one hand the Finance Dept. purports to "protect" pensioners from their possible ineptitude and on the other hand prevents pensioners who try to organize and operate a responsibly invested portfolio from doing so. This is both contradictory and hypocritical on the Federal Government's part.

Less government and a "hands off" approach have always been a conservative philosophy. But with regard to Locked-in RRSP accounts nothing can be further from the truth. While other provinces have moved to remove the restrictions from Locked-in accounts and allow people access, the federal government and the Department of Finance refuse to allow Canadians any form of control over funds that are rightfully theirs. Why would the federal government refuse to allow people too have control over their financial futures? Why would the federal government want to stand by and watch its citizens suffer financial loss and hardship because they had the unfortunate luck to be employed by a company with a federally regulated pension plan? Why is it that the provincial governments have moved into a new age of enlightenment and have allowed people control over their financial lives while Ottawa refuses to grant people the same dignity?

Upon researching this issue, I have found that a majority of people when informed of this issue find the position of the Federal government to be unreasonable. I have found the Federal governments antiquated and paternalistic attitudes towards this issue so disgusting that I will not work for a company that is under federal pension regulations if at all possible. I would appreciate a response concerning the above questions and would like to see an indication that the Federal Government is moving towards giving control of Locked-in RRSP funds to the owners of the funds.

I await your response.

Regards,

P.S. – I’m still awaiting his response.