Canada’s actuaries are calling for bold public policy measures and strong leadership by plan sponsors and members to reverse the steady decline in defined benefit (DB) pension plans.

The Canadian Institute of Actuaries has released a 10-point action plan designed restore DB plans as an attractive retirement savings vehicle for working Canadians and their employers.

“Healthy defined benefit pension plans are too important to Canadians, to our economy and our future to let them slowly die as a result of misperceptions and false economies,” says the Institute’s president, Normand Gendron. “Our plan sets out how the system can pull defined benefit pension plans back from the brink and create a healthy pension environment that protects the adequacy and security of Canadians’ retirement income.”

“Employees, employers, retirees, unions, professional advisors and governments all must work together to restore the health of defined benefit pension plans,” Gendron adds.

Earlier today, Gendron announced the Institute’s 10-point plan during a speech to the Economic Club of Toronto. The plan calls for the following measures:

  1. Pass legislation to allow employers to set up 100% employer-funded Pension Security Trusts that would be separate from, but complementary to, regular defined benefit pension plan funds.
  2. Pass legislation to allow the use of irrevocable letters of credit to secure solvency deficiencies.
  3. Pass legislation to improve the transparency of plan funding and governance by requiring plan sponsors to establish a written funding policy for defined benefit plans.
  4. Expand annual disclosure required by plan sponsors to include funding policies, investment policies, the plan’s current funded status and the date of the next plan valuation.
  5. Pass legislation to require each defined benefit plan to build up a Target Solvency Margin.
  6. Establish a task force, with representation from the profession and pension regulators, to develop guidance on appropriate levels of solvency margins.
  7. Change the tax rules to allow plan sponsors to develop larger surpluses.
  8. Pass legislation to protect underfunded pension benefits by according them treatment similar to that of unpaid pension plan contributions in bankruptcy and restructuring proceedings.
  9. Bring responsibility for pension matters within the authority of provincial finance ministers.
  10. Examine alternate ways of handling underfunded plan wind-ups for insolvent employers, such as establishing a new pension insolvency insurance vehicle.

The Institute notes that DB plans offer predictability, more security and less risk to plan members, while helping employers to attract and retain employees and better manage their workforce. DB plans also generate higher investment returns and provide superior pension coverage for employees in all sectors.

“Canadians have one of the best pension systems in the world, but that system must include defined benefit pension plans. Our Pension Prescription, if implemented, will help to secure defined benefit plan benefits for members and foster a pension system that encourages employers to create and maintain defined benefit plans,” says Gendron.