The Ontario Expert Commission on Pensions (OECP) will submit its report to the province by the end of October, a few weeks later than expected, said commission member Kathryn Bush at a recent Blake, Cassels & Graydon LLP seminar in Toronto.
While she expects the report will be completed on time (by the end of summer), it will take a few extra weeks to be translated into French.
Although she wasn’t able to discuss any of the commission’s current deliberations or potential conclusions, Bush shared some of the main research areas that the OECP is investigating. Key issues for defined benefit (DB) pension plans include coverage, funding, corporate restructuring and worker mobility, what happens when plans fail, regulation models, plan governance, innovation in plan design and future policy development.
Bush noted that while DB pension plan coverage is steady in terms of absolute numbers, it has gradually declined as a percentage of the workforce since the 1970s—particularly in the private sector. “If DB plans are so wonderful then they ought to be more widely available,” she remarked. Some possible reasons for this decline include regulatory issues, the “perfect storm” of low interest rates and poor market returns, demographic changes in the workforce and labour market factors such as de-unionization.
From a funding perspective, she described the conflict that many plan sponsors face between the long-term time horizons of pension plans and the shorter-term funding and accounting rules that govern them. “It’s true that funding can never be just right,” she said. “The question for our government is, How do you make things predictable and affordable, and still secure?”
Bush also noted that there is a significant regulatory “log-jam” at the Financial Services Commission of Ontario. For example, she said, due to slow processing timelines, plans are waiting around a year and a half to complete a partial windup. An asset transfer takes an average of 1,165 days. “Clearly, the commission has looked at this, and I think everyone was shocked by the timelines,” she said. “So one would hope that something will be done to change that situation, to shorten those timelines.”
Given the complex and often conflicted nature of the pension system in Ontario, having effective laws and an efficient regulator is important. “[You] have to be able to get things done,” she added. “And if you can’t, you’re not helping the system.”
When it comes to pension innovation, Bush said the message from the actuarial firms was clear: for many plan sponsors, DB can’t survive in its current form. Instead, pension regulations must allow greater flexibility for different plan types (e.g., hybrid plans) and risk-sharing models. The commission will also consider how to manage changes within the pension system more effectively on an ongoing basis.
For some background information on the OECP, click here to read our special online section.
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