CANADA - The Canadian Office of the Superintendent of Financial Institutions (OSFI) has warned it is likely to place more private pension plans on its watch list after pressure on pension fund solvency deficits increased.
According to OSFI’s new publication, Plans and Priorities 2006-2009, the financial and economic environment was deteriorating for defined benefit plans, with low interest rates and changes to actuarial standards adding to solvency woes.
It said: “Private pension plans continue to generate considerable concern. The ageing population in Canada and other jurisdictions ensure pensions have a high profile. Some plan sponsors face financial and reputational risk and low interest rates have reduced solvency rates.”
As a result of questions on how to deal with under-funded plans and surplus ownership, OSFI has seen many plan sponsors reconsider the “viability” of the defined benefit pension plans.
The publication highlighted that OSFI planned to focus on the funding of deficits on termination, court decisions on the treatment of surplus and increased concern by pension plan sponsors that the current regulatory and legislative regime is not conducive to defined benefit plans.
“The risk is that pressure for excessive relaxation of funding requirements to assist sponsors could reduce protection for pensioners, or that rule changes could reduce incentives for plan participants to solve problems,” OSFI stated.
In addition OSFI said it would allocate more resources to the operation of an effective system for pension supervision, including the need for intervention in dealing with problem plans. Work will include active participation in government policy development that may address issues such as funding, treatment of surplus and other concerns related to defined benefit plans.
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