Nonpayment of pensions: 'This is a national crisis'

Labour Department says $13.7 million owed by 1,144 companies

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Cayman Islands Complaints Commissioner Nicola Williams first reported in 2010 that 670 local businesses were delinquent in paying their employee pensions.  

In the more than three years since, the problem has grown exponentially worse so that, as of June 30, a total of 1,144 business were listed as delinquent on payments into the private sector retirement system. Those businesses owed a total of $13.7 million to their current or former workers, according to Cayman Islands Labour and Pensions Department Director Mario Ebanks.  

Mr. Ebanks said Wednesday that 167 businesses had been placed on payment plans following negotiations with his office and were due to pay up about $3.14 million into the various private sector retirement funds.  

“It’s a significant amount, there’s no other way of saying it,” Mr. Ebanks said of the amount in arrears.  

Commissioner Williams had another way of saying it: “This is a national crisis.”  

“To say I was surprised that the problem has gotten worse is a massive understatement,” Ms Williams said Wednesday, revealing some information her office had obtained since its first own-motion investigation of the Cayman Islands private sector pension system.  

“Working men and women … every month have funds deducted from their paychecks, thinking that these monies are being contributed to a pension plan which will help provide for themselves or their families in retirement,” Ms Williams said, “only to discover that it was used in some other way, or in some cases stolen from them, by dishonest employers.”  

Ms Williams said her first report from 2010 had identified 21 recommendations the Office of the Complaints Commissioner issued in attempts to fix the problem from the government side of the equation. Ms Williams’s office does not have any mandate to take on employers or the pension plan funds directly. Only 10 of those 21 recommendations were “substantially complied with” by government and 11 other items were not.  

“This level of delinquency affects thousands of people – Caymanian and non-Caymanian alike,” Ms Williams said, opining that she believed the majority of people who had been shorted pension contributions over the years by local businesses were Caymanians, Caymanian status-holders and permanent residents.  

Mr. Ebanks said the latter cases Ms Williams referenced regarding the theft of pension funds were found to be very few of the entire delinquent number, but he admitted the scope of the problem – for an office that has four senior pension investigators – is daunting.  

In the early part of this year, Mr. Ebanks said the Department of Labour and Pensions was able to “clear out” 562 of 1,108 cases in which employers were found to be at least 45 days behind in making good on their pension obligations. Some $1.3 million was collected in amounts paid back from those employers.  

However, by June 30, that figure of delinquent companies had grown again to 1,144, despite the cases cleared earlier in the year by the labour and pensions office, with the companies involved owing nearly $14 million in past due pension payments. 

In addition, Mr. Ebanks said his department was able to review 377 backlogged complaints regarding non-payment of pensions since the beginning of 2013. Those cases are now in “various stages of resolution,” he said, with some having been put before the courts, others being time barred for prosecution because they were more than five years old and still other cases where no offense occurred.  

The Cayman Islands National Pensions Law requires all private sector employers to contribute toward a retirement plan for both Caymanian and non-Caymanian workers. The minimum contribution to those plans is a 5 percent payment taken from the employee’s salary and a matching 5 percent contribution from the local employer up to $60,000 annual salary. Employees can put in more toward their own retirement plans, if they wish.  

Public sector pensions are governed under separate legislation known as the Public Service Pensions Law and did not fall under the scope of the complaints commissioner’s 2010 report.  

A proposal was made by the previous United Democratic Party government under a revised National Pensions Bill that would have eliminated the requirement for non-Caymanian workers to contribute to a retirement plan, but that bill was never passed into law. The new Progressives-led government has promised to bring a revised plan for national pensions to the Legislative Assembly early in its term.  

Until changes to the law are made official, Ms Williams said the rules are clear: “If you can’t run a business and pay your employees health care and pensions … then you can’t afford to run a business.”  

Mr. Ebanks agreed with that statement and noted that government still lacks a “culture of compliance” when it comes to enforcing pension laws. He said agencies should cooperate more closely with one another to ensure that delinquent employers are not provided work permits or trade and business licenses from the government.  

“These people were not pursued in the way that we’ve pursued them over the last nine months,” Mr. Ebanks said. “Once you’ve received a firm letter from a regulator … once they get this letter, they see it’s serious and they see we are going to prosecute … any reasonable and credible employers will respond.” 

Ms Williams said the problem needs to be resolved by more action and not just sending a few sternly-worded letters.  

“Many people about to retire will find that they have insufficient funds on which to live, and will have to rely on social services or other financial relief provided by the government, which are already stretched to the breaking point,” she said. “This is not only a problem for the Department of Labour and Pensions, but for the [Employment] Ministry and government as a whole.”  

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Cayman Islands Complaints Commissioner Nicola Williams. Photo: Chris Court
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11 COMMENTS

  1. The pension and health care laws have introduced a level of complexity and cost that is a big discouragement to people who have or wish to start a small business.
    This is the Cayman Islands, a tax free jurisdiction, where we should have light regulations in everything. People should be paid and they should be allowed to do anything they wish to do with their monies.
    If a Company wishes to provide health care and a pension plan as a competitive advantage to recruit better employees that should be their privilege too, but it should not be mandatory.
    This program is going to cause lots of small Caymanian businessmen to get into great financial distress and shut there doors.

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  2. I am almost 100% certain that the majority of those affected are expat workers. One of the dirty little secrets that nobody in Cayman wants to talk about is fact that a lot of the business owners in Cayman want expat workers because they know that they can be exploited with minimal consequences.

    Any employer that deducted pension contributions from their employees income but did not put the funds into a pension plan should be sent to prison.

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  3. Absolutely if one is to embark on a business, oversight body, or governmental agency then financial obligations to the workforce should be a priority before monies are spent elsewhere.

    By the same token I trust that the Gov’t includes themselves in this.

    I believe the Gov’t owes their own pension plan approx 175m (with non core another 10m), and have for many many years. In additional this massive shortfall is likely to be much higher being the actuarial analysis is very old, does not take into account the increased size of the civil service, and is based on an investment return that the plan has not been able to achieve over the past 15 years. In other words the 175m shortfall is likely much much higher!

    So I trust then that Ms Williams in her statement If you can’t run a business and pay your employees health care and pensions … then you can’t afford to run a business does include their own obligations into the mix, and assuming their is a surplus this year, how much of that surplus is being applied to make good on their own pension obligations.

    Or we can just pass it onto the generation …

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  4. I guess I am not as smart as I thought I was. The government is boasting and wondering what to do with its 100M surplus. Option # 1 and I think its a good one, is to pay that liability to pensions before the problem bites you in the @#%!

    As for the private sector, if anyone has the stones to do it, you simply make the owners/directors of the delinquent companies responsible personally for these outstanding monies. Otherwise, shut down the business until it makes good on the payments owing.

    From the outside,it all seems so obvious and simple as to what to do.

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  5. How can you compete against companies that does not pay pension. The most efficient way to resolve the problem is: the yearly letter of good standing should be given only when proof of pension and health insurance compliances are up to date.

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  6. Good point Sean.

    And while we are at it we had better mention the approx. 665m commitment for future health care entitlements that I understand is also unfunded.

    665m 175m Govt pension shortfall = 840m in non reserved commitments. Wow.

    The current national debt of 575m is in addition to the 840, add the approx. 180m in non core debt guarantees (55m Turtle Farm etc) bringing the known and estimated liabilities to 1.6 billion in today’s terms.

    That is a sizable B for a country this size. Wow.

    So yes Len, we are all looking to Gov’t to pay this off before any surpluses are used for new commitments.

    Time will tell whether we get there. Our viability depends on it.

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  7. Every employee in Cayman, Caymanian, Status Holder, Permanent Resident with a right to work, should immediately ask their employer to provide an original copy of a statement showing the current status of their personal Pension Account. If their employer cannot produce that statement, they should immediately contact the Pensions Office, and their MLA.
    The Pensions Office, and it’s management, have to be held accountable for failing to implement a programme which allowed them to monitor, on a month to month basis, which companies were not complying with the applicable Law, and where necessary take immediate action.
    Somebody has been sitting on their hands .

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  8. The non payment of pensions is the visual tip of the ice berg. This country has a major problem of customers not paying service providers on time. The pension law states employers must pay each month however there is no effective recourse for employers to recover late debts from customers unless the customers can be co-named in the pension cases. How is the employer meant to pay on a monthly basis for pension if he is not getting paid at the same rate from his customer.

    I suspect this is one of the reasons why we have seen the huge rise in late pension payments as it is the only true record of payment on a month by month basis.

    I suspect the rate of bank foreclosures has risen at the same rate as non pension payments as this is also a marker of debt.

    I suspect the use of black market labour has increased where people hire folks of the street and pay directly without paying for pension or medical in the amount and pocketing the difference to save money.

    As an employer I know that payments which used to be paid within 5 days now take months to collect and it is often hard to meet the legal requirements and still get paid myself or pay my vendors on time due to late paying customers, for once they have your work they are in hurry to pay you any more.

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