The Pension and Investment Association of Canada is calling on the federal government to establish a going-concern plus regime as a long-term minimum funding requirement for federally regulated defined benefit pension plans.
In its pre-budget submission to Finance Canada, the PIAC said it believes the Canadian government should set a uniform funding requirement for all provinces to follow, since most provinces have introduced minimum funding requirements of their own.
A federally mandated funding requirement is in the best interests of both pension plan sponsors and members, said the PIAC, noting DB plans are inherently long-term obligations, so short-term solvency funding policies aren’t appropriate. It also suggested that moving to a going-concern plus regime would allow for more consistency in DB plan funding, which could motivate plan sponsors to continue maintaining their plans rather than winding them up.
Read: CIA supporting going-concern plus regime, auto features in Alberta’s private sector pensions
The PIAC also called for the introduction of variable payment life annuities, stressing the importance of decumulation options for defined contribution pension plan members. It encouraged the federal government to refrain from setting limits to which entities can offer a VPLA, to promote thorough and transparent communication to members and to refrain from setting prescriptive measures on funding and adjustment limits.
The organization also recommended revisiting the pooled registered pension plan framework to address issues with enabling individual membership, providing more flexibility with price controls at the early stages of PRPP rollout and enabling decumulation-only longevity pools.
As well, the PIAC urged the government to consider alternative solutions to Bill C-228, which would give super-priority to pension plan members in the event of a plan sponsor’s bankruptcy or insolvency. It also suggested the House of Commons standing committee on finance continue to work with stakeholders to restructure operations to sustain business activity; ease the pension consolidation processes; and use solvency reserve accounts to help improve plans’ funded statuses during periods of underfunding.
And the PIAC again expressed concern over the federal government’s decision to cease issuing real return bonds, adding the program’s cancellation will force pension plans to look to alternative markets outside of Canada — and toward complex, expensive and less liquid real assets — to manage inflation risk. It also noted smaller pension plans, as well as plans with mature demographics, may not have the scale or timeframes to seek out alternative investments.