On October 27, the Minister of Finance announced a reform plan to strengthen the regulatory framework for federally regulated private pension plans. The plan is the culmination of months of consultations following the release of a Department of Finance discussion paper in January. According to the government, the proposed reforms—which will be introduced through changes in regulation and through new legislation—will increase the security of benefits for workers and retirees while allowing pension plan sponsors to better meet their funding requirements.

The reform plan has five principal objectives:

- Enhance protections for plan members. Proposed measures require plan sponsors to fully fund pension benefits upon plan termination and prohibit contribution holidays for pension plans with solvency ratios—the ratio of total assets to total liabilities—less than 105 percent.Reduce funding volatility for defined benefit (DB) plans. A new standard for establishing minimum funding requirements will be introduced that uses average solvency ratios over a period of 3 years, rather than only the current year.

- Resolve plan-specific problems. A new "workout scheme" will be established to assist distressed pension plans that are unable to meet their funding requirements. The scheme will allow plan sponsors, members, and pensioners to negotiate changes to their pension arrangements that do not conform to existing rules.

- Improve the framework for defined contribution (DC) plans and negotiated contribution defined benefit (NCDB) plans. New rules will clarify the responsibilities of the parties involved in DC plans and in NCDB plans. (NCDB plans combine aspects of DB and DC pension plan arrangements and are common in multiemployer pension plan arrangements).

- Modernize pension fund investment rules. New rules will relax certain restrictions on pension fund investments.

In Canada, private pension plans supplement the public retirement system made up of a noncontributory universal old-age pension and the earnings-related Canada Pension Plan. (The province of Quebec opted out of that plan, but has a similar earnings-related plan called the Quebec Pension Plan). Private pension plans are voluntary, but must be registered with either federal or provincial authorities. Approximately 7 percent of all private pension plans in Canada are federally regulated.

This article was extracted from the United States Social Security Administration publication International Update, December 2009.

Source: Social Security Programs Throughout the World: The Americas, 2007; Complementary and Private Pensions throughout the World, 2008; Department of Finance Canada press release, October 27, 2009; "Communiqué: Modernization of Federal Pension Rules," Mercer, October 30, 2009.

Publication date: 10.2009