Financial Executives International Canada called for an immediate increase in the funding period of solvency deficits at yesterday’s Ontario Expert Commission on Pensions hearings.
“Under the current windup solvency rules, financially strong companies would be forced to divert significant cash flows in the short term from their successful capital investments,” said Peter Donovan, chair of FEI Canada pensions task force. “This could negatively impact our economy as far as limiting corporate growth and development, liquidity and shareholder benefits.”
FEI Canada recommended that the pension solvency funding period be increased from five years to the lesser of the remaining active service life and the long-term funding period of 15 years.
The association notes that adjusting the funding period for solvency deficits will allow pension plan sponsors to adjust cash flows over a defined period in order to make these payments without disrupting their capital investment activities.
It also recommended that plan sponsors should have the right to own plan surpluses to the same extent that they own plan deficits unless the pension documentation contract stipulates something different.
The recommendation extends FEI Canada’s view that pension plans should be governed by contract law, rather than trust law, as is the case today.
The public hearings continue next Tuesday and Wednesday in Toronto before moving on to Kingston and Ottawa the following week. For more information regarding the hearings, click here.
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