Employer-funded security trusts and access to surpluses among proposed fixes
Canada's patchwork of regulations, legal decisions, tax rules and changes to accounting standards have all contributed to the erosion of defined benefit pension plans, according to Canada's actuaries.
To combat these issues, the Canadian Institute of Actuaries has released a 10-point action plan designed to put Canada's ailing pension system back on track.
"Healthy defined benefit pension plans are too important to Canadians, to our economy and our future to let them slowly die as a result of misperceptions and false economies," said the Institute's president, Normand Gendron.
"Our plan sets out how the system can pull defined benefit pension plans back from the brink and create a healthy pension environment that protects the adequacy and security of Canadians' retirement income."
10-point Pension Prescription
1. Pass legislation to allow employers to set up 100 per cent employer-funded pension security trusts that would be separate from, but complementary to, regular defined benefit pension plan funds.
2. Pass legislation to allow the use of irrevocable letters of credit to secure solvency deficiencies.
3. Pass legislation to improve the transparency of plan funding and governance by requiring plan sponsors to establish a written funding policy for defined benefit plans.
4. Expand annual disclosure required by plan sponsors to include funding policies, investment policies, the plan's current funded status and the date of the next plan valuation.
5. Pass legislation to require each defined benefit plan to build up a target solvency margin.
6. Establish a task force, with representation from the profession and pension regulators, to develop guidance on appropriate levels of solvency margins.
7. Change the tax rules to allow plan sponsors to develop larger surpluses.
8. Pass legislation to protect under-funded pension benefits by according them treatment similar to that of unpaid pension plan contributions in bankruptcy and restructuring proceedings.
9. Bring responsibility for pension matters within the authority of provincial finance ministers.
10. Examine alternate ways of handling under-funded plan wind-ups for insolvent employers, such as establishing a new pension insolvency insurance vehicle.
The institute notes that defined benefit plans offer predictability, more security and less risk to plan members, while helping employers to attract and retain employees and better manage their workforce. Defined benefit plans also generate higher investment returns and provide superior pension coverage for employees in all sectors.
To combat these issues, the Canadian Institute of Actuaries has released a 10-point action plan designed to put Canada's ailing pension system back on track.
"Healthy defined benefit pension plans are too important to Canadians, to our economy and our future to let them slowly die as a result of misperceptions and false economies," said the Institute's president, Normand Gendron.
"Our plan sets out how the system can pull defined benefit pension plans back from the brink and create a healthy pension environment that protects the adequacy and security of Canadians' retirement income."
10-point Pension Prescription
1. Pass legislation to allow employers to set up 100 per cent employer-funded pension security trusts that would be separate from, but complementary to, regular defined benefit pension plan funds.
2. Pass legislation to allow the use of irrevocable letters of credit to secure solvency deficiencies.
3. Pass legislation to improve the transparency of plan funding and governance by requiring plan sponsors to establish a written funding policy for defined benefit plans.
4. Expand annual disclosure required by plan sponsors to include funding policies, investment policies, the plan's current funded status and the date of the next plan valuation.
5. Pass legislation to require each defined benefit plan to build up a target solvency margin.
6. Establish a task force, with representation from the profession and pension regulators, to develop guidance on appropriate levels of solvency margins.
7. Change the tax rules to allow plan sponsors to develop larger surpluses.
8. Pass legislation to protect under-funded pension benefits by according them treatment similar to that of unpaid pension plan contributions in bankruptcy and restructuring proceedings.
9. Bring responsibility for pension matters within the authority of provincial finance ministers.
10. Examine alternate ways of handling under-funded plan wind-ups for insolvent employers, such as establishing a new pension insolvency insurance vehicle.
The institute notes that defined benefit plans offer predictability, more security and less risk to plan members, while helping employers to attract and retain employees and better manage their workforce. Defined benefit plans also generate higher investment returns and provide superior pension coverage for employees in all sectors.
