The Pension Investment Association of Canada is urging the government to boost the ability of pension plans to whether the current financial crisis.

The association has called for pension plans to have improved capacity to respond to changing financial and demographic trends in the past several years, and it says the credit crunch is underlining this need.

“The recent market events and world-wide credit crunch have the potential to put severe strain on Canada’s pension system,” PIAC said in a statement.

“Urgent action is required to ensure that pension plans, and in the case of private sector plans, the employer sponsors behind them, are able to weather the current financial crisis.”

The association has written finance ministers across the country calling for action. In the short term, the association requests temporary relief to plan sponsors in the form of extended amortization of solvency deficits to 10 years. Also in the short term, it calls for the use of a solvency discount rate based on AA rated corporate bond yields that has a similar duration to that of the pension plan liabilities.

In the longer term, PIAC requests the easing of solvency funding requirements, and for the government to address risk asymmetry in the rules regarding surplus entitlement.

This can be achieved by providing plan sponsors the flexibility to use Letters of Credit, which already exists on a permanent basis in Alberta; permitting plan sponsors to establish special purpose accounts that are independent from the main pension trust; and researching the feasibility of allowing pension plans to have reduced solvency funding requirements based on the credit worthiness of the plan sponsor.

Also in the longer term, PIAC calls for the opportunity for plan sponsors to enhance the funded position of the plans when possible. This could be achieved through amendments to the Federal Income Tax Act to allow plan sponsors to make contributions beyond the current 110% limit and by allowing plan sponsors to earmark contingency reserves to fund pension plans, where plan sponsors would have the clear entitlement to reclaim funds not required to fund pension benefits.

Furthermore, pension investments should be held to the standard of a prudent person and all quantitative limits on investing should be eliminated, PIAC said.

Lastly, the association calls for the harmonization of pension law across Canada, and the establishment of one regulatory system for pensions with one set of rules.

PIAC has made detailed submissions over the past three years to the pension review panels in Nova Scotia, Quebec, Ontario, and B.C./Alberta. Taken together, these reviews present a unique opportunity for all levels of government to make changes that can have a beneficial effect in response to the immediate crisis and for decades to come.

IE