The Pension Investment Association of Canada will concentrate its legislative advocacy efforts on funding reform in 2024, including for an overhaul of long-term, minimum funding regulations for federally regulated defined benefit pension plans, said David Lawson, the PIAC’s new chair.
In an emailed statement to Benefits Canada, he said as DB plan sponsors continue to face macroeconomic and capital market challenges, the solid investment returns seen in public markets last year may not necessarily carry forward. With solvency funding top of mind for all stakeholders, the association would like the federal government to implement one uniform going-concern funding rule for all provinces to follow, rather than having provinces introduce their own requirements by way of either a going-concern funding rule or a plan termination solvency funding rule.
“The existence of two different funding regimes is costly to pension plans,” said Lawson, noting a going-concern plus regime can meet this desired balance and may motivate some DB plan sponsors to maintain their plans. “A unified funding rule can be designed to meet the needs of beneficiaries and plan sponsors, balancing the need for benefit security and plan sustainability.”
Several initiatives by the Canadian Association of Pension Supervisory Authorities are also top of mind for the PIAC, including the CAPSA’s much-anticipated risk management guidelines. He cautioned the guidelines may potentially impose a disproportionate burden on smaller DB plans that lack dedicated risk management resources available to larger plans.
With the federal government increasing scrutiny of the Canadian pension fund investment landscape in this post-coronavirus recovery period, the PIAC is also paying close attention to coming policy proposals.
“Pensions don’t often get very much attention in budgets or economic updates, so the policy proposals mentioned in the recent federal fall economic statement — domestic pension fund investment, consultations on the ’30 per cent rule,’ and increased investment distribution disclosure for large federally regulated plans — certainly warrant our close attention,” he said.
Read: Removal of ‘30% rule’ could boost investment, reduce private equity fees for Canadian pension funds
The PIAC remains focused on monitoring the development and implementation of the federal government’s new super-priority bill that puts protections in place to further safeguard DB plan members’ retirement savings in the event of insolvency. The association believes this move could lead to significant and unintended consequences for plan sponsors, including increased risk and the potential for more DB plan sponsors to windup or close their plans.
The federal government has other options to achieve its goal of better protecting beneficiaries and pensions in the event of bankruptcy, said Lawson, noting it could work with stakeholders to restructure operations to sustain business activity, adopt funding rules under the Pension Benefits Standard Act consistent with most pension jurisdictions that now follow a going-concern plus regime, ease the merger process from single-employer pension plans to multi-employer pension plans and utilize Solvency Reserve Accounts to help improve plans’ funded status during periods of underfunding.
The PIAC will also continue its advocacy and consultation for the real return bond program in Canada, as it considers its discontinuation a serious concern. Lawson hopes the association’s efforts to highlight the value of the program will lead the government to maintain it, much like it did with the Canada mortgage bond program. “Many pension plans are natural buyers of real return bonds: a useful tool to hedge against inflation-indexed benefits. The absence of Canadian real return bonds may compel pension fund investment to shift toward more complex, expensive and less liquid inflation hedging alternatives beyond the Canadian market. This, in turn, will decrease investment in the domestic market.”
The PIAC will also continue advocating for regulatory framework that supports variable life benefit options and other decumulation alternatives, he said. “These options offer essential decumulation options for defined contribution arrangements, addressing a vital aspect often overlooked in retirement planning.”
This year, the association welcomes Alison Gould, Sean Kulik, and Ying Wu to its board, with Don Andrews moving into the executive director role and Romina Cortina becoming its first manager of government and external relations.
Read: PIAC calls for going-concern plus regime, VPLAs, PRPP framework in pre-budget submission