The federal government Tuesday unveiled its reform plan for the federal private pension legislative and regulatory framework.

“We understand the value of secure and sustainable pension plans. We are proposing a balanced package of measures for the benefit of pension plan sponsors, plan members and retirees,” stated Finance Minister Jim Flaherty.

The package includes measures to enhance protections for plan members, reduce funding volatility for defined benefit plans, make it easier for participants to negotiate changes to their pension arrangements, improve the framework for defined contribution plans and for negotiated contribution plans, and modernize the rules for investments made by pension funds.

In particular, the federal government plans to restrict an employer’s ability to take a contribution holiday unless a 5% funding cushion remains, change the solvency funding methodology to make it less volatile and less pro-cyclical by basing the funding requirements on a three-year average, and require employers to fully fund pension benefits on plan termination.

“These reforms will provide enhanced benefit security for workers and retirees while allowing pension plan sponsors to better manage their funding obligations as part of their overall business operations,” Flaherty added.

In addition, the government intends to increase the pension surplus threshold under the Income Tax Act, which applies to both federally and provincially regulated defined benefit plans, to 25% from 10%.

The proposed changes are aimed at federally regulated private pension plans, which represent about 7% of pension plans in Canada.

While some of the proposed changes can be introduced by changes to regulation, others will be implemented by legislation, which is expected to be introduced in Parliament, the government says.

Tuesday’s announcement comes out of extensive consultations with Canadians, beginning with the January release of a discussion paper, Strengthening the Legislative and Regulatory Framework for Private Pension Plans Subject to the Pension Benefits Standards Act, 1985, and including online consultations.

In March and April, Ted Menzies, Parliamentary Secretary to the Minister of Finance, chaired a series of national public and private consultation meetings across Canada to hear the views of Canadians on strengthening the framework.

IE