A disturbing 92% of private sector defined benefit pension plans are in a deficit position, a number which has more than doubled over a five-year period, a new report by the Certified General Accountants Association of Canada reveals.

Gauging the Path of Private Canadian Pensions: 2010 Update on the State of Defined Benefit and Defined Contribution Pension Plans was released on Friday. The report shows that pension funding deficits have climbed from $160 billion in 2003 to an estimated $350 billion in 2008, and continue to grow.

“Pension plans should not be allowed to metamorphose into empires of debt,” said Anthony Ariganello, president and CEO of CGA-Canada. “The recent events with national companies such as Nortel Networks, AbitibiBowater, Fraser Papers and CanWest have highlighted a need to better preserve pension plan solvency and improve member protection.”

The report calls for the Canadian retirement system to afford greater protection, and to replace unsustainable DB pension plans and inadequate defined contribution pension plans with hybrid models that draw upon the best elements of each.

“Canadians’ ability to maintain a financially comfortable and healthy lifestyle is bleak unless the retirement system undergoes a drastic makeover,” said Rock Lefebvre, vice-president of research and standards at CGA-Canada. “Pension plans should not operate in a manner that unduly borrows from future generations to pay the present one.”

The report also reveals problems with the taxation system. Lefebvre points out that current tax rules prejudice Canadians without employer-sponsored plans. Even if registered retirement savings plan limits are reached, these Canadians cannot save as much for their retirement as Canadians who have employer-sponsored pension arrangements.

To remedy this, CGA-Canada proposes a system that would provide Canadians with equal opportunity to build retirement income outside of pre-existing plans. In particular, it calls for a new pension system that is sustainable, simple to administer and cost effective, harmonizing the efforts of federal and provincial stakeholders and recognizing pension benefits as deferred compensation.

IE