CANADA - Regulations should be altered to encourage companies to continue offering defined benefit (DB) schemes, said Bank of Canada governor, David Dodge, yesterday.
Dodge outlined a six-point plan of legal changes which would alter taxation rules and backtrack on impending changes to accounting protocol forcing company balance sheets to reflect pension fund movement.
He commented to the conference board at Canada’s 2007 pension summit that under the new rules employers would be less likely to take on assets with higher expected returns.
Dodge added: "Sponsors have been scaling back or restricting new entries into these types of plans, largely because they do not have the right incentives to maintain or operate defined benefit plans."
He admitted, however, the nation’s legal and regulatory framework had served Canadian workers and employers well, but there were shortcomings.
Also at the conference, Watson Wyatt presented a report which stated the number of Canadian HR CFOs and vice presidents who believed there was still a funding crisis in the nation’s pension system had fallen from 61% to 48% since 2006.
Another 19% believed there to be a crisis, but said it was cyclical.
Conference board public policy vice president, Gilles Rhéaume, commented: “In an environment of labour shortages, pensions – especially DB plans – are considered a very valuable recruitment and retention tool.”
Other proposals given by Dodge included ensuring sponsors retained control of surplus funds to incentivise carrying the risk of bailing out pension funds in deficit.
He called for scrutiny of tax rules discouraging a surplus greater than 10% and pension rules forcing a rapid response to a temporary funding shortfall.
Under Dodge’s plan, employees would have to accept a pension payment reduction or longer working years if longevity had increased by their retirement age.
Any cost of negotiated improvements to benefits would have to be made clear to all parties before contributions were made under the plan.
Dodge also commented smaller companies should be helped to set up DB schemes by encouraging multi-employer plans, similar to the pension plan for Ontario municipal employees.
In March, he claimed many people wanted to work past retirement age and barriers preventing them doing so must be removed
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