Ontario should scrap its Pension Benefits Guarantee Fund (PBGF) in favour of a less risky alternative, says a new Fraser Institute report, “Getting Ontario’s taxpayers off the hook for private pension liabilities.”
The paper—written by Nachum Gabler, research assistant in the Centre for Canadian-American Relations, and Neil Nohindra, director of the Centre for Financial Policy Studies—calls the PBGF a “fiscal albatross” that is forced to rely on provincial tax dollars to cover its deficits.
“The collected premiums intended to support current and future claims have been insufficient to meet those obligations,” they write, referencing Algoma Steel and Nortel as two examples where government had to step in.
While the PBGF was created as a way to protect DB plan members should their employer become insolvent, with more and more organizations switching from DB to DC, fewer Ontario employees are actually privy to these entitlements, argue the authors.
What’s more, they say, “guaranteeing private defined benefit plans via a commitment from taxpayers creates a ‘moral hazard’—the notion that plan sponsors will take on more risk because the full costs of their actions are borne by someone else.”