Changes to federally regulated pensions imminent, but experts call for fixes now

By Kristine Owram, The Canadian Press

TORONTO - Ottawa says changes to federally regulated pension plans are imminent, but pension experts say it could be years before the proposed changes have any impact.

Ted Menzies, parliamentary secretary to Finance Minister Jim Flaherty and the front man for Ottawa's pension consultations, confirmed that the government is on the verge of making a major overhaul to the way federally regulated pension plans are run.

Although Menzies wouldn't give any specifics about the planned changes ahead of the official announcement, he confirmed in an interview with The Canadian Press that the government is examining several ways to ensure federally regulated plans remain solvent.

Menzies hinted that there will be changes to reporting requirements for federally regulated funds, which include pensions for employees of national organizations like Air Canada and the major railways.

"If last June a pension fund was shown to be adequate or in surplus, then you didn't have to report or do an evaluation for three years. Last year, that wasn't a good thing," Menzies said.

Ottawa also plans to look into how it can encourage pension plans to build up bigger surpluses when times are good to provide a backstop "for a rainy day," Menzies said.

Existing legislation prevents federally regulated employers from over-funding their pension plans by more than 10 per cent. The goal of this is to protect federal tax revenue, as contributions to pension plans are exempt from taxes.

Under current legislation, it is also unclear whether a pension plan surplus belongs to the plan sponsor or its members. Menzies said he hopes to "define that to encourage the sponsors (to run a surplus) rather than discourage them."

He added that the federal government may also change the level of surplus required before a company is allowed to take a so-called "pension holiday," or a break from contributing to its plan.

However, Malcolm Hamilton, a pension expert with Mercer Human Resource Consulting, said the proposed changes will do little to fix the short-term problems faced by Canada's pension plans, which have taken a beating from the financial crisis as well as historically low interest rates, with many suffering serious solvency deficits as a result.

"I wouldn't expect it to have a large impact and it would certainly have no immediate impact," Hamilton said.

"The problem today isn't plans with a surplus that they're not being allowed to leave in the plan, the problem today is plans with no surplus, and allowing them to stockpile surpluses in the future doesn't change the fact that they weren't allowed to do it in the past."

Many struggling pensioners feel the most important and immediate fix Ottawa can make is to protect retirees from losing a chunk of their pension - or the whole thing - if the company they worked for goes bankrupt.

Francois Meunier, regional chair for a group representing former employees of insolvent technology giant Nortel, said he was hoping to see changes to Canadian bankruptcy law that would give pensioners preferred status when a company goes bankrupt.

"What we're asking them to do is modify the (Companies' Creditors Arrangement Act) such that because of the situation we're in as pensioners, that we get a higher level of preference as a creditor as opposed to being in line with everybody else," said Meunier, chair of the Ottawa region for Nortel Retirees and former employees Protection Canada.

"We're not just creditors, we're not bondholders that were taking an investment risk. This is our money that was supposed to be given back to us."

However, Menzies said any changes to bankruptcy legislation would fall under the purview of Industry Minister Tony Clement and won't be addressed by the Finance Ministry's pension task force.

Meunier also called for a federal insurance program that would protect pensioners in case of bankruptcy.

However, Menzies said similar schemes at the provincial level have failed and the government isn't considering a federal insurance program at this point.

"If you could show me a success where that has worked in this country, we would be more open to it," he said.

Ontario is the only province that currently has a pension benefits guarantee fund, which provides the province's pensioners with up to $1,000 a month in the event a plan fails to provide its full benefit, or any benefit at all.

However, the Ontario government has admitted that with only about $100 million, the fund is dramatically underfunded.

Fewer than 10 per cent of pension plans in Canada are federally regulated, and Menzies said he hopes any changes at the federal level will encourage the provinces to follow suit.

The federal government has been consulting with various stakeholders across the country on pension reform since last January, and has created a working group with the provinces and territories to find a collaborative solution to pension problems in Canada.

A recent survey by the Office of the Superintendent of Financial Institutions put the average solvency ratio for the 400 or so private plans it regulates at 0.88 or 88 per cent as of June 30.

That means that, on average, the total value of assets in all federally regulated private plans were 12 per cent lower than liabilities. That was a three per cent improvement from December 2008 when the assets of such plans were 15 per cent short of liabilities.

But while the average solvency deficit was 12 per cent, it is much greater for some plans and in some cases has reached 50 per cent of more.