Immediate action from the federal and provincial governments is needed to help companies weather the challenges they are facing with their defined benefit pension plans, the Financial Executives Canada (FEI Canada) said Friday.

“As the Prime Minister and first ministers’ prepare for their upcoming meeting, we feel it is important to caution the government to not allow existing pension legislation to jeopardize the short-term cash flow of employers in an environment marred by an extreme liquidity crunch and poor market prospects,” said Michael Conway, CEO and national president, FEI Canada, in a release.

“Now is the time to provide single and multiple employer defined benefit pension sponsors relief over the large solvency deficits which will inevitably arise in the upcoming valuations of these pension plans,” Conway said.

FEI Canada is recommending that the pension solvency funding period be increased from five years to the lesser of the remaining active service life and the long-term funding period of 15 years.

The association notes that adjusting the funding period for solvency deficits will allow pension plan sponsors to adjust cash flows over a defined period in order to make these payments without disrupting their capital investment activities.

“Under the current windup solvency rules, financially strong companies would be forced to divert significant cash flows in the short term from their successful capital investments,” said Peter Donovan, chair, FEI Canada Pensions Task Force. “This could further negatively impact our economy by limiting corporate growth and development, liquidity and for some their very survival in this particularly difficult time.”

Conway further notes that without immediate action, short-term funding at the precise time of depressed stock values and low long-term evaluation rates, will only serve to add yet another potentially unbearable cash drain for many pension plan sponsors stating,

“We do not believe that government should wait until there are inevitable bankruptcies to act. Early action can serve to stave off further negative economic impact, which will serve the best interests of pensioners and corporations who employ millions of Canadians.”

IE