CANADA - The Canadian government has proposed shelving certain investment restrictions currently imposed on private pension plans.
Minister of Finance Jim Flaherty has suggested that removing the limits on the amounts pension plans can invest in resource and real property investments would "offer greater latitude in building a prudent fund portfolio".
He has also proposed changes to funding rules to prevent sudden shocks to the funded status of plans, such as those brought on by the financial crisis in 2008 and at the turn of the century when actuarial changes coincided with a sharp decline in long-term interest rates.
These proposals are part of a comprehensive package of reforms to 1985 pension laws announced last October.
"The volatility in financial markets in recent years has shown us that changes are needed to enhance protection for plan members and modernize the rules for pension fund investments," said minister Flaherty.
Currently, there are 5%, 15% and 25% quantitative limits in respect of resource and property investments.
But the ministry said that during public consultations, there was wide support from plan sponsors and industry experts for eliminating these restrictions.
There were also calls to eliminate the rule that limits a pension plan from owning more than 30% of the voting shares of a single entity.
But the ministry said: "The government has examined this rule and has concluded that it remains appropriate at this time for prudential reasons.
"Specifically, the government believes that removing the 30% rule would increase the potential for pension plans to own and operate companies."
Other proposed changes to the 1985 laws governing private plans include those relating to funding.
The government wants to adopt a new standard for establishing minimum funding requirements on a solvency basis that will use average, rather than current, solvency ratios to determine minimum funding requirements.
The aim is to reduce the effects of short-term fluctuations in the value of plan assets and liabilities on solvency funding requirements and reduce the impact of sudden shocks to the funded status of the plans.
Flaherty added: "These amendments will allow sponsors to better manage their funding obligations and give them greater flexibility in terms of investment allocation, in order to fulfill their funding obligations."
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