Guiding principles for funding pension plans
CBA comments on proposed multi-employer pension framework.
In its consultation paper, A New Framework for Multi-employer Negotiated Contribution Pension Plans, the Finance Department proposes a new funding framework for those plans that would remove solvency funding requirements while maintaining going-concern funding and additional safeguards to uphold benefit security for members and retirees.
In its comments on the consultation paper, the CBA’s Pensions and Benefits Section begins by reiterating its four guiding principles: sustainability, clarity, harmonization and retirement income security and encourages Finance Canada to adopt those principles as it proceeds with consideration of the new framework.
The Section responds to various questions raised by the consultation paper on the topics of funding, funding policy, portability, governance policy and disclosure.
The Section says it “endorses the proposed approach of exempting multi-employer negotiated-contribution plans from minimum solvency funding requirements” because eliminating those requirements will enhance the plans’ ongoing sustainability. It notes that in terms of harmonization, comparable plans in several provinces are exempt from solvency funding requirements.
Section members disagree on whether the policy objective of retirement income security would be achieved by the introduction of an enhanced going-concern funding standard, and the letter notes that the issue has been dealt with differently across Canada.
“Given the different approaches across Canada for the going-concern funding rules in multi-employer plans, there is the potential for inequities in the plans without a multi-jurisdictional agreement between the federal government and each province and territory with pension standards legislation,” the Section says. “We encourage continued collaboration between the federal, provincial and territorial governments to create a new multi-jurisdictional agreement with an equitable and consistent approach to funding matters for these plans.”
The Section says it is “prudent” to have a minimum funding threshold for benefit improvements to ensure that any increase to benefits is sustainable.
It also recommends that the administrator of multi-employer NC plans be required to establish and maintain a funding policy, which should cover at least the areas of funding objectives, the main risks from a funding perspective, the guiding principles for an administrator to consider, and factors to consider so any improvements to benefits are sustainable.
In terms of portability, the Section says the purpose of a pension plan is to provide retirement benefits, so members should be encouraged to leave their benefits in the plan to secure a retirement income. It supports the initiative to calculate NC commuted values on a going-concern basis rather than a solvency basis, which encourages plan members to take a commuted value from the plan and can harm the plan’s funded status.
It also agrees that a new requirement to establish a governance policy is consistent with enhancing retirement security, as it generally promotes effective administration. “For clarity, consideration should be given to balancing guidance and internal consistency in determining the content of such requirements.”
Finally, the Section says it can be important for members to know the plan’s solvency ratio, and that information should be provided to them if it affects the benefits they receive or can expect to receive.