OECP Report Underwhelms
For defined benefit (DB ) plan sponsors looking for relief from the financial and legal issues that have made DB plans problematic, the report by the Ontario Expert Commission on Pensions, released on Nov. 20, was of little help.
“The report does not adequately address the need to create a regulatory environment that encourages the creation of economically viable new pension plans, or continuation of existing plans, which would increase coverage for the majority of Ontario residents,” explains Steve Bonnar, a principal with Towers Perrin.
With its 142 recommendations—one being to increase funding rules standards—the timing of the report’s delivery couldn’t have been worse. The commission had likely finalized its findings prior to the recent economic crisis, making suggestions such as increasing funding rules standards for single employer pension plans to 105% out of step with what the industry is currently looking for.
“While it is important not to let short-term developments overwhelm long-term perspective, the result is that the report feels in some ways as if it has already been overtaken by events,” says Gary Nachshen, a partner with Stikeman Elliott LLP.
Malcolm Hamilton, a principal with Mercer, feels the commission should have focused on how to improve and strengthen Ontario’s retirement system, as was the case for other Canadian pension commissions. “Instead, it was given the mandate of, How do we save the defined benefit plan in Ontario?”
Jepps Report Praised
Unlike the OECP report, experts say the Alberta/B.C. Joint Expert Panel on Pension Standards provided a comprehensive assessment of what a modern retirement system should look like, taking into account the decline of defined benefit plans and subsequent rise of defined contribution (DC) plans.
“They’ve left no stone unturned,” says Greg Hurst, a principal with Morneau Sobeco. “They’ve looked at the current regulatory environment and concluded that it needs a wholesale rewrite.” Praised for addressing strategic issues such as the need for an Alberta/B.C. (ABC) pension plan for those who lack pension coverage, the report included details such as making financial literacy part of high school education. One significant difference between the two reports is the call for the creation of a pension security fund to manage employer contributions to satisfy solvency requirements.
However, the ABC pension recommendation will likely receive the most attention due to its scope. Such a plan, explains Scott Sweatman, the panel’s B.C. co-chair, would create sufficient economies of scale to enable employees and employers to participate at low cost in a DC plan and serve as a cornerstone for a national supplementary pension plan. “If it was successful in B.C. and Alberta, there’s no reason why it couldn’t have national scope.”
Jody White is Associate Editor of BenefitsCanada.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the January 2009 edition of BENEFITS CANADA magazine.