Feds propose private pension reform

Changes would reduce funding volatility and enhance protections for plan members

The federal government has proposed changes to federally regulated private pension plans to enhance protection for plan members, reduce funding volatility and modernize the rules for investments by pension funds.

“The volatility in financial markets in recent years has shown us that changes are needed to enhance protection for plan members and modernize the rules for pension fund investments,” said Minister of Finance Jim Flaherty.

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. This will 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. The practice of taking contribution holidays was widespread in the past and added to the underfunding of pension plans.

• 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.

“These amendments will allow sponsors to better manage their funding obligations and give them greater flexibility in terms of investment allocation, in order to fulfill their funding obligations,” said Flaherty.

The public can comment on the proposed changes until May 29.

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