Fewer Canadians will be covered by defined benefit pension plans in the future and many plans will be under-funded unless governments make significant changes to the rules governing workplace pension plans, concludes a major report released today by the Association of Canadian Pension Management (ACPM).

The report, which was released today, concludes that Canada’s current rules and legislation do not encourage employers to continue offering DB plans as a retirement savings option for their employees.

DB plans typically guarantee members a retirement income based on a pre-set formula and a member’s years of service with a company.

“Existing rules do not encourage the adequate funding of DB plans-which results in under-funded plans offering less benefit security,” says Paul Litner, chairman of the ACPM’s Funding Issues Task Force.

The ACPM report urges governments to review current funding rules for DB pension plans and to remove the barriers to rational plan funding.

According to the ACPM, a key barrier is that plan sponsors are often responsible for funding shortfalls but are prevented from accessing excess funds. It says that this can lead to minimum funding strategies that put benefit security at risk.

The report makes a number of recommendations, including strengthening disclosure requirements around plan funding and ensuring that plans have a written funding policy. The report specifically recommends amending the Income Tax Act to enable plan sponsors to better manage the funding of their DB plans.

Implementing the recommendations will create a better, more secure environment for DB plans, says Litner.

Continued sponsorship of workplace pension plans is critical, says Litner, pointing out that these plans are a positive economic force and are part of the Canadian social fabric. “They mitigate risk by helping employees save for a financially secure retirement.”

The ACPM represents private and public pension plan sponsors, administrators and related stakeholders. It currently has 700 members across Canada, representing 400 pension plans covering approximately 3 million plan members.