Fragmentation of pension regulations, inconsistent governance procedures and uncertainty regarding legal risk exposures are causing problems for more than two-thirds of Canadian plan sponsors, according to a survey.
According to the Survey of Pension Plans in Canada, commissioned by Aon Consulting and the Canadian Financial Executives Research Foundation (CFERF) (the research institute of FEI Canada), nearly one-third of respondents expressed an interest in introducing phased retirement plans within the next three years. However, despite the recent amendment of the Income Tax Act (ITA) to allow such plans, pension legislation in several provinces continues to prevent national employers from taking advantage of the ITA provision.
“This is just one example of the numerous inconsistencies inherent in the fragmented system of Canadian pension regulation,” says Darla Sycamore, a member of the CFERF Board. “In particular, there is great disparity among various provincial regulations and their application to pension plans.”
On compliance issues, the survey found that one in five defined contribution (DC) plan sponsors either do not comply with the CAP Guidelines or are not yet aware if they are in compliance, while 17% of respondents said they have allocated governance roles and responsibilities for their plans in accordance with the CAP Guidelines but have no documented process for monitoring these responsibilities.
“Clearly, the Canadian DC pension plan market has significant opportunities for strengthening governance procedures,” says Barry Gros, vice-president of Aon. “The high number of companies supporting DC plans without ensuring adequate compliance under the CAP Guidelines suggests that more work has to be done by pension professionals and regulators to ensure the future financial well being of plan members.”
The report also shows that approximately 45% of respondents are interested in adopting alternative pension plan structures to the existing defined benefit (DB) and DC-type arrangements, with the aim of achieving a risk-sharing intermediate between DB and DC plan structures.
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