Pension Reforms Put In Place

The Department of Finance has released a proposal for improvements to the framework of private pension plans that are federally regulated. The reforms are the end result of a process begun by Minister of Finance Jim Flaherty in January 2009. A review of the shortfalls in pension funding, which some estimates put as high as $50 billion dollars, was needed to deal with the meltdown that occurred within the financial markets over the past year. It is estimated that approximately 7% of current pension plans would fall under this category of plans in Canada.

The reform proposals would have an impact on the following areas:

• Plan members would have increased protection as solvency deficits are dealt with and upon plan terminations companies will be required to fully fund the pension benefits. Disclosure requirements within the plan will be enhanced and annual member statements will include expanded information, which will provide important details for plan members.

• Minimum funding requirements using average solvency ratios to determine the market value of the plans. Pension surplus thresholds will be increased to 25 percent under the Income Tax Act, an increase from the current 10%.

• Funding arrangements will be made for pension plans that are in distress and the plan sponsor would be provided with a period of time where payments are not required. Changes would be negotiated to the pension arrangements and representation would be provided all plan members.

• A framework for defined contribution plans that would implement measures to provide explicit information on responsibilities and accountabilities to employers, members and administrators.

The Minister of Finance, the Honourable Jim Flaherty said "These reforms will provide enhanced benefit security for workers and retirees while allowing pension plan sponsors to better manage their funding obligations as part of their overall business operations.î