CANADA - The challenges facing the long term-health and viability of DB plans in Canada has prompted the pension regulator to advise administrators to "review" their plans.
According to the Office of the Superintendent of Financial Institutions (OSFI), estimates show some three-quarters of the DB pension plans it regulates have a solvency ratio of less than one. The number of plans on the regulator’s watch list has also increased with expectations of further rises in the future.
In a speech made to the Empire Club in Canada, Nicholas Le Pan, Superintendent of OSFI said plan administrators may need to review their plans’ benefit structures and “determine whether the plans, in their current structure, continue to be affordable”.
OSFI has seen a “marked” increase in the number of plans seeking to reduce benefits. In some cases, Le Pan noted, this option may be better for plan members than the alternative of plan termination, however he warned this would not be an easy road to pursue.
Le Pan added that OSFI was prepared to continue to work with plan sponsors and members to find reasonable solutions that could involve plan restructurings to make them more affordable. OSFI is currently approving benefit reductions when it is better for plan members than the alternative of plan termination.
He advised administrators to not “wait for interest rates or markets to turn around.” In the present environment, high quality disclosure to members regarding the health of their plan was deemed the best route.
OSFI said it would support flexibility in the regulations for plans to deal with increased deficits, perhaps temporarily, but stressed it would want to see that plans members do not suffer under any new arrangements made Canada’s department of finance.
The use of DC plans versus defined benefit plan arrangements has also risen, with the regulator blaming tax rulings, ongoing fights regarding ways to resolve surplus disputes and, partly, results from costs of multiple rules and rigidity in funding for the shift.
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