Ottawa proposes changes to private pensions

Intended to make plans less sensitive to financial market volatility
||Last Updated: 01/04/2011

(Reuters) - The Canadian government has proposed changes to rules governing federally supervised private pension plans to make them less sensitive to financial market volatility.

The regulatory amendments would provide more tools to sponsors of federally regulated private pension plans to "better manage their funding obligations while providing additional protection to plan members and retirees," said Finance Minister Jim Flaherty.

The changes would only affect about seven per cent of all private pension plans in Canada, as most are regulated by provincial authorities. The suggested amendments are:

• Allow plan sponsors to secure letters of credit in lieu of making solvency payments to pension funds, up to a limit of 15 per cent of plan assets.

• Require a plan sponsor to fully fund pension benefits on plan termination.

• Void any amendments to a plan that would reduce the solvency ratio of the pension plan if the plan's solvency ratio would be below a ratio set out in regulations.

• Permit plan sponsors, members and retirees of a distressed pension plan to negotiate their own funding arrangements to facilitate a plan restructuring.

The announcement comes just ahead of a meeting next Monday between Flaherty and provincial finance ministers in Alberta to try to lay out a plan for broader pension reform in the country. The amendments are being released for public comment.

Ottawa first proposed in October 2009 a series of measures to reform private pension plan regulations and has since introduced some legislative and regulatory changes.

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