Amendments to private pension rules

3 changes concern solvency ratios, contribution holidays and investment limits

The federal government has finalized regulations relating to federally regulated private pension plans that it said will enhance protection for plan members, reduce funding volatility and modernize the rules for investments by pension funds.

“These amendments reflect financial market volatility in recent years, which points to the need to enhance protection for plan members,” said Minister of Finance Jim Flaherty. “The changes also modernize the rules for pension fund investments and give plan sponsors greater flexibility in terms of investment allocation to allow them to better manage their funding obligations.”

The amendments to the Pension Benefits Standards Regulations, 1985 include:

• A new standard that uses average — rather than current solvency ratios to determine minimum funding requirements and soften the impact of short-term market fluctuations on a plan’s solvency funding requirements.

• Limiting contribution holidays unless the solvency ratio exceeds full funding, plus a new solvency margin, set at a level of five per cent of solvency liabilities. This measure will enhance benefit security by helping to maintain a cushion of pension plan assets.

• A modernized investment framework that removes the limits on the amounts pension plans can invest in resource and real property investments. This will offer greater latitude in building a prudent fund portfolio.

The regulations are part of the modernized federal pension announced in October 2009 and the Government intends to make additional changes to the legislative and regulatory framework in the coming months.

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