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Fighting pension fatigue

Posted by on Feb 1, 2009 in Employee Benefit News, Retirement | 0 comments

By: Sheryl Smolkin

Read this article and comments at HRInsider.ca  

I think my case of pension fatigue started shortly after the report of the Ontario Expert Commission on Pensions was released late in November – on the same day I arrived home on a red-eye flight from Maui.

Barely a week later, Alberta and British Columbia issued the Joint Expert Panel on Pension Standards’ report. This has been followed by daily media articles documenting the impact of the economic crisis on pension funds and subsequent announcements from the federal government, Ontario, Saskatchewan and Alberta of possible pension bailouts.

And by the time you read this, industry stakeholders will be putting the finishing touches on yet another round of submissions responding to both the OECP and the JEPP reports.

With 142 wide-ranging recommendations in the OECP report and 125 recommendations in the JEPP report, governments have been given an almost overwhelming buffet of options to choose from as they contemplate the best recipe for changes that will shape pensions for the next generation of Canadians.

There have been across-the-board kudos to Ontario Commissioner Harry Arthurs for the comprehensive nature of the review and the quality of the research conducted, but overall, the JEPP report seems to be getting higher marks.

It is also not surprising that for those in the management and labour camps, individual recommendations in both reports may be perceived as creating winners and losers.

For example, in the Ontario report, a recommendation extending the solvency deficiency amortization period for five to eight years for plans that are at least 95% funded, and new rules that would limit partial windups to cases where 40% of the active members of the employer are terminated within a two-year period, have been well-received by plan sponsors.

However, single-employer plans are less enamored with potential cost increases flowing from recommendations that would extend grow in to voluntary terminations, increase Pension Benefit Guarantee Fund benefits and restrict the payment of plan expenses if the fund is in deficit.

In a recent article, Towers Perrin Principal Steve Bonnar wrote, “Pension regulation should focus on three primary goals: promoting increased pension plan coverage, clarifying the benefit promise made by a pension plan, and ensuring that the promised benefits are delivered. Unfortunately, the OECP report addresses only the second and third goals.”

Osler, Hoskin & Harcourt Partner Louise Greig agrees: “My big disappointment with the Arthurs’ report is that it does not grapple head on in a clear way about the issue of pension coverage. I think the JEPP report addresses the issue in a much more helpful and constructive way.”

Speaking on a CPBI panel, independent consultant and the Royal Bank’s acting head of M&A and Global Pension & Benefits Gretchen Van Riesen, went even further, saying:

“It is clear that the funding advantages and expedited approvals from regulators are being reserved for jointly sponsored plans and target-benefit plans. If these OECP recommendations are enacted provincially and nationally, the day of the single-employer DB plan is over.”

 

So what happens next?

Given that the focus of both industry stakeholders and governments has been on how to stay afloat in the current economic tsunami, reports from Nova Scotia, Ontario and B.C./Alberta could easily be put on the shelf and forgotten. Or in the alternative, politicians could randomly cherry-pick specific provisions to include in legislative packages that are neither internally cohesive nor nationally consistent.

But either of these options would be a tremendous waste of resources and do little to ensure expanded pension coverage for Canadians.

Somehow we have to fight off pension fatigue and find a way to keep up the momentum. We cannot squander this unique opportunity to incorporate the best possible ideas in as uniform a way as possible across the country. In addition, labour and management will have to agree upon a balanced approach to pension reform so governments can confidently proceed.

In the words of Koskie Minsky Partner Murray Gold,  an expert adviser to Commissioner Harry Arthurs, “If what you do is perceived as favouring one side or the other, you run a grave political risk. So my guess is that whatever happens with this report – whether it is implemented in full or in stages – each chunk will have to be balanced enough to say you lost this but you got that.

Otherwise we’re back in the soup.”

 

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