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Canadian Institute of Actuaries' Submission in Response to Finance Canada's Regulatory Framework for Federally Regulated Defined Benefit Pension Plans consultation:
Submission by the Canadian Institute of Actuaries Presented to the Department of Finance (Federal)
Comments on the Consultation Paper
Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the
Pension Benefits Standards Act, 1985
Pension and Social Security Liaison Committee
The Canadian Institute of Actuaries (CIA) has a strong interest in the issues related to defined benefit pensions, especially their funding.
There are three fundamental observations underlying our submission:
1. We need changes to our retirement system which would encourage increased pension coverage.
2. The asymmetric treatment of deficits and surpluses does not encourage conservatism in pension funding. Consequently, it has a detrimental effect on benefit security. As long as the asymmetric treatment of deficits and surpluses continues to exist, it may not be possible to encourage plan sponsors to maintain and better fund their pension plans at the same time. We are confident that it is possible to adopt appropriate legislative changes implementing a framework that will alleviate these problems and consequently better meet the long-term interests of all stakeholders.
3. Increased coordination among Canadian jurisdictions in the development of pension standards would be preferable.
The following comments are addressed at specific questions raised in the Consultation Paper:
- In the dispute settlement mechanism for surplus distribution, we would support that the criteria for consent be applied to all plan beneficiaries as a group and not separately for each category of beneficiaries. Also, the government might consider modifications to the requirement to maintain a contingency reserve of 25% of the solvency liabilities for surplus withdrawals while the plan is ongoing.
- We would support the elimination of partial plan terminations.
- We support allowing financial instruments to be used to guarantee amortization payments for solvency deficits. We also suggest considering other mechanisms under which plan sponsors can make additional contributions without the potential negative effects of the asymmetric treatment of deficits and surpluses.
- We believe that the current amortization period of 5 years for a solvency deficiency is appropriate. However we would support as a temporary measure an extension of the solvency amortization period to 10 years for all plan sponsors, subject to reasonable conditions and rules.
- We support greater disclosure to plan members provided it is meaningful and cost-effective.
- We question the proposed void amendments provision based on a prescribed solvency ratio level, as there is a risk that it would unduly restrict the growth and improvement of pensions for a majority of pension plans. We believe that there are alternative approaches that would provide a better balance between the need to maintain a higher degree of benefit security and the need to minimize financial disincentives for plan sponsors to improve pension plans.
- We support the proposal to require full funding on plan termination. However, this should be coupled with a satisfactory resolution – for all stakeholders – to the issues of surplus ownership and asymmetric treatment of deficits and surpluses.
- We believe that a legislative solution to the surplus ownership issue and the adoption of reasonable minimum solvency funding might be preferable alternatives to a pension benefits guarantee fund in improving the security of pension plan benefits and ensuring the viability of defined benefit pension plans in the long-term.
- The CIA will revise its standard of practice for reporting on pension plan funding.
We encourage the pension regulators and governments in Canada to work together at defining new improved pension standards that reflect the need for increased pension coverage, the risks assumed by the various stakeholders, and the members' concerns about better security. The CIA would be pleased to participate in discussions on these crucial aspects.
The Canadian Institute of Actuaries (CIA) is pleased to submit its comments on the consultation paper Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the Pension Benefits Standards Act, 1985 (the Consultation Paper). This submission has been prepared by the CIA's Pension and Social Security Liaison Committee with the collaboration of the CIA's Committee on Pension Plan Financial Reporting (PPFRC), and approved by the Practice Standards Council of the CIA.
The CIA is the national organization of the actuarial profession in Canada. The CIA is dedicated to serving the public through the provision, by the profession, of actuarial services and advice of the highest quality. To this end, the CIA promotes the advancement of actuarial science and sponsors programs for the education and qualification of members and prospective members. It maintains programs to ensure that actuarial services provided by its members meet accepted professional standards.
The CIA has more than 3,700 members across Canada. Approximately half of these members work in the pension plan area and are involved in the design, administration and funding of pension plans by working with plan sponsors, plan administrators, unions and trustees to design, finance and administer their pension plans. They have played a major role in the creation of pension plans and government income security programs, and in establishing the funding required to ensure the viability of these plans and programs.
One of the CIA's goals is to assist legislators in developing pension plan legislation that efficiently meets the needs of all parties. Through its relations with government officials and conscious of its responsibility to the public, the CIA tries to promote legislative intervention conducive to the effective and efficient management of pension plans, while best meeting the interests of all parties involved in these plans.
The CIA is very active on the pension plan front:
- Building on the work of previous CIA working groups, the CIA issued in March 2005 a Statement of Principles on Revised Actuarial Standards of Practice for Reporting on Pension Plan Funding. This statement of principles delineates what the PPFRC believes the actuary's reporting on pension plan funding should convey to the CIA's publics and, therefore, what should be the standard for accepted actuarial practice in that regard. This statement of principles proposes significant changes in actuarial reporting on pension plan funding.
- In April 2005, the Task Force on the Role of the Pension Actuary issued a Discussion Report on the Role of the Pension Actuary and Challenges to Professional Integrity. The discussion report identifies the roles of the pension actuary, explains the challenges to his or her professional integrity when engaged in those roles, and provides recommendations designed to protect the interests of the actuary's various publics. The report records the preliminary views of the task force, and does not represent the official position of the CIA. The purpose of the discussion report is to stimulate dialogue. The task force will reflect upon the feedback it has received and subsequently issue its final report.
- In the fall of 2004, the CIA set up a project team to undertake a review of a number of pension plan actuarial reports. The ultimate purpose of this review is to enhance the support and advice provided by the CIA to practitioners preparing such reports, to provide input to the practice committees responsible for the documentation of standards, and generally to promote the highest quality of work product. In August 2005, the CIA released the final report of the pension review project team.
The documents described above are available in the Publications section of the CIA's website at the following links:
- Note: to read the PDF version you need Adobe Acrobat Reader on your system. If the Adobe download site is not accessible to you, you can download Acrobat Reader from an accessible page at: http://www.adobe.com/products/acrobat/alternate.html. If you choose not to use Acrobat Reader you can have the PDF file converted to HTML or ASCII text by using one of the conversion services offered by Adobe at http://www.adobe.com/products/acrobat/access_onlinetools.html.
- To view the RTF version, use the document conversion features available in most modern word processing software, or use a file viewer capable of reading RTF.
We acknowledge, with thanks, the valuable comments that the CIA has received, to date, from the Government of Canada in relation to these documents, including the submissions prepared by staff of the Office of the Superintendent of Financial Institutions.
Both the Consultation Paper and this submission focus mainly on single employer defined benefit pension plans. However, multi-employer pension plans (MEPPs), particularly MEPPs in which employer contributions are directly negotiated, present unique circumstances and issues. We encourage the government to always consider this uniqueness in all its legislative and regulatory developments. Applying the same rules to all plans may not always be appropriate.
The CIA believes that improvements can and must be made to the current legislative and regulatory framework for defined benefit pension plans in Canada in order to enhance benefit security and ensure the viability of defined benefit pension plans. Accordingly, we applaud the efforts of the Department of Finance in the preparation of the Consultation Paper. We thank the Department of Finance for the opportunity to comment and provide suggestions on a variety of significant issues affecting pension plans today which could shape the legislative and regulatory framework for the defined benefit pension plans registered under the Pension Benefits Standards Act, 1985 (PBSA). The CIA would be pleased to assist the Department of Finance and the Office of the Superintendent of Financial Institutions in developing the details of the measures it will recommend to the Government of Canada for adoption following the consultation process.
Section I: General Comments
In addition to the goals mentioned in the introduction of this submission, the following general observations have guided us in the elaboration of our specific comments presented in the following section.
We need changes to our retirement system which would encourage increased pension coverage.
We are disappointed about the absence of a strong focus on improving the level of pension coverage.
As noted in the Consultation Paper, various studies demonstrate that defined benefit plan coverage is declining and a decreasing proportion of people entering the workforce are covered by defined benefit pension plans, especially in the private sector. In part, the movement from defined benefit to defined contribution plans or no plan can be explained by the changes in the business environment and the characteristics, needs and priorities of the workforce (e.g., more temporary, part-time work and self-employment). However, too many employers have abandoned defined benefit plans because of what they see as an adverse legal environment (e.g., uncertainty about surplus ownership and contribution holidays) and overly demanding pension legislation (e.g., lack of flexibility in funding, barriers to asset/liability transfers, absence of uniform pension standards across Canada). The volatility of costs reported in the financial statements of employers under accounting standards, and the escalating cost of administration, are also factors that put pressure on defined benefit plans.
We observe that a majority of workers and their representatives express a preference toward defined benefit plans due to the higher retirement income predictability and security they provide.
The CIA believes that increased pension coverage, either defined benefit or defined contribution, would be beneficial to our society. It will ultimately reduce the financial burden of social security for future generations, when a higher proportion of our population will not be in the active workforce.
The CIA shares the concerns expressed by governments and pension authorities about the decrease in benefit security that has resulted from the deterioration of the financial position of most defined benefit pension plans in recent years. On the other hand, the CIA is concerned, as are most of the stakeholders in the Canadian retirement system, about the recent decline in the number of defined benefit pension plans and the consequent reduction in the number of employees covered by such plans. Our retirement system needs changes which would encourage the maintenance and growth of both defined benefit and defined contribution plans.
Pension plan coverage is too low, especially in the private sector. We support the objectives of the Consultation Paper to strengthen the legislative and regulatory framework for defined benefit pension plans registered under the PBSA in order to improve the security of pension plan benefits and to ensure the viability of defined pension plans. In considering new policy initiatives to achieve these objectives, we would encourage the government to be mindful of the possible negative impact on pension coverage, and to introduce changes in a way that will not result in a reduction of coverage.
The asymmetric treatment of deficits and surpluses does not encourage conservatism in pension funding. Consequently, it has a detrimental effect on benefit security.
A critical issue that must be resolved is that of surplus ownership and distribution. The solution should meet the needs of both management and labour and should properly reflect the risks assumed by the parties involved.
Many employers have been reluctant to fund their pension plans using conservative actuarial assumptions, because they perceive the treatment of surpluses and deficits to be "asymmetric." In most single-employer plans, the employer backstops the funding risks and, therefore, feels that it should control the use of funding surpluses, whether through contribution holidays, surplus reversions, or benefit improvements. When funding deficits occur, whether ongoing or wind-up, employer contributions are increased. So when funding surpluses occur, many employers believe that they should be able to use that surplus as they see fit. This would make the treatment of deficits and surpluses "symmetric".
On the other hand, plan members have argued that they bear the funding risks and should, therefore, own the surpluses. When a plan is wound up and the employer is unable (or not even required in some jurisdictions) to pay off the deficit, it is the plan members who suffer a reduction in their benefits. Even while the plan is ongoing, any increased cost of employer funding has an indirect impact on members' wages, as such increases are viewed by employers as part of the "cost of labour" and by plan members as "deferred wages". Furthermore, in some plans members share directly in the cost of ongoing deficits through adjustments to the member contribution rates. For these reasons, some plan members believe that they do share in deficits and the cost of deficit funding, and should likewise share in surpluses.
Plan sponsors seek reasonable predictability of costs and will resist making contributions to pension plans when they do not feel they are adequately compensated for the risks they undertake. At the same time, plan members expect reasonable assurance of the delivery of the promised benefits. These objectives can best be achieved by encouraging discussion on these topics between the stakeholders to seek areas of agreement on how the proper balance can be achieved. The CIA has already started an initiative with this in mind and would welcome the support and participation of government.
Increased coordination among Canadian jurisdictions in the development of pension standards would be preferable.
The Régie des rentes du Québec and the Canadian Association of Pension Supervisory Authorities (CAPSA) have also recently issued consultation papers dealing with pension plan funding. We intend to continue cooperating closely with the Department of Finance and all other legislative authorities in Canada in the building of a better retirement system, especially in the area of pension funding. For purposes of efficiency and to avoid perpetuating a patchwork of pension standards, we would much prefer to see coordinated consultation and changes.
Section II: Specific Comments
In this section, we provide comments on each of the specific issues raised in the Consultation Paper.
Disincentives/Obstacles for Adequate Funding
The Consultation Paper correctly identifies uncertainty over surplus ownership and income tax rules as significant disincentives and obstacles preventing plan sponsors from building up a funding cushion.
As mentioned in our general comments, the asymmetric treatment of deficits and surpluses does not encourage conservatism in pension funding. Conservatism in setting valuation assumptions is a major source of surplus in the long run for pension plans and it is justified to provide benefit security for plan members.
The uncertainty about surplus ownership is a significant disincentive for plan sponsors to fund their plans beyond the minimum requirements. If they cannot access surplus funds or must share surplus funds with the plan members, they will be more likely to reduce the margins for conservatism in their funding policy. Many plan sponsors have already responded to the current surplus environment in that way.
We believe that plan sponsors and plan members will benefit from having clarity around surplus ownership. The surplus ownership is a legal issue that should be addressed by the regulatory framework for private pension plans rather than the courts.
The Dispute Settlement Mechanism for Surplus Distribution
In establishing a claim to surplus, we note that the requirement of separate consents for both categories of beneficiaries may cause problems in certain situations. Requiring separate consents could provide disproportionate power to one category of beneficiaries over the other (e.g., in an immature plan, the opposition of a handful of non-active members may nullify the consent of a significant majority of the whole membership, and conversely in a closed plan with few remaining active members). We would support that the criteria for consent be applied to all plan beneficiaries as a group and not separately for each category of beneficiaries. As an alternative, the Government of Canada may wish to consider the Quebec model, in which consent to a surplus distribution proposal is deemed to be given unless 30% or more of all plan beneficiaries object in writing to the proposal.
We note that some observers have criticised the requirement to maintain a contingency reserve of 25% of the solvency liabilities while the plan is ongoing. Given the volatile nature of the funding position of a pension plan, we agree that a contingency reserve would ensure continued benefit security for the plan beneficiaries, but the presence of a contingency reserve that is too large could create an incentive to terminate a plan in order to withdraw more surplus. The CIA would be pleased to participate in discussions on an appropriate contingency reserve requirement.
We do not believe, however, that improving the dispute settlement mechanism for surplus distribution would be sufficient, by itself, to eliminate plan sponsors' reluctance to better fund pension plans, especially given the stringent member consent requirements. A more comprehensive solution to remove uncertainty over surplus ownership and to resolve the perceived "asymmetry" would be necessary.
Distribution on Partial Terminations
The Monsanto Decision has created uncertainty and it is one of the disincentives that discourage plan sponsors from building up a funding cushion. The requirement to distribute surplus on a partial termination cannot only be damaging to the security of remaining members but also it creates inequities among the various plan members:
- Members affected by a partial termination will inevitably have a larger or smaller share of surplus than the members in the plan on a full termination, if there ever is a full termination.
- Retirees are seldom included in a partial termination, although they may have been retirees that would have been in the affected group before retirement.
- The existence of surplus in a defined benefit pension plan at any given date is usually attributable to interest rates or stock market returns or downsizings. From the members' perspective, this is largely a matter of chance.
We understand that OSFI's interpretation of the PBSA is that the members' rights upon a partial termination do not include a distribution of surplus. We believe that there is a risk that OSFI's interpretation, if not codified in the law, could be challenged in court. Also, the question of what constitutes a partial termination has proven to be very difficult to interpret in practice. Therefore, we would support the elimination of partial terminations. This would not only eliminate the surplus distribution issue on partial termination but also eliminate the administrative and cost burden related to partial terminations.
Letters of Credit
We support the proposal to allow the use of letters of credit because of the additional flexibility it provides, without decreasing the security of the benefits accrued by the plan members. It also allows employers to reduce the potential negative effects of the asymmetric treatment of deficits and surpluses. Moreover, it provides employers with more flexibility in cash flow utilization and cash flow management; these are important considerations in the current environment of worldwide competition and the struggle for increased efficiency.
Allowing a financial instrument such as a letter of credit to be used to guarantee solvency amortization payments would be a positive development only for some plans. Letters of credit will not be an appealing option for many employers due to several negative aspects, such as set-up and ongoing fees, impact on credit line, and complexity. Consequently, it would be inappropriate that this change be used as a justification to impose higher funding of pension plans.
We see the use of letters of credit as a means of providing temporary benefit security. We would not recommend their use as a substitute for proper funding of a pension plan. To ensure that the risk to benefit security is minimized, we recommend that reasonable restrictions might be imposed on the use of letters of credit, such as the following:
- Letters of credit might be limited to cover the payments required for the amortization of solvency deficits.
- As letters of credit would be considered plan assets, you may wish to consider a dollar or a percentage limit on the portion of the solvency deficit that may be supported by the letter of credit, similar to the limits on other permitted investments in the pension fund.
- Letters of credit should remain in effect unless they are reduced or cancelled by paying an equivalent contribution into the pension fund or having a surplus on a solvency basis.
Extending Solvency Funding Period to 10 Years
We believe that the sufficiency of assets on a plan solvency basis is the ultimate test of security. Provided that the asymmetric treatment of deficits and surpluses is addressed, the current amortization period of 5 years strikes the appropriate balance between a goal of full funding on a solvency basis within a reasonably short time frame and providing a long enough period for experience gains to eliminate additional funding obligations. We also believe that a longer amortization period might be more appropriate if a provision for adverse deviation to reflect the mismatch between assets and liabilities is included in the calculation of the solvency liability (as has recently been proposed by the Régie des rentes du Québec).
However, we would support temporary measures such as extending the solvency funding period to 10 years to assist sponsors of pension plans that have incurred significant solvency deficiencies due to recent economic events. Suggested conditions and rules for granting an extended amortization period for solvency funding might include the following:
- Solvency value of assets should be measured at market value.
- Liabilities for plan amendments would be funded over 5 years.
- Actuarial losses on a solvency basis will be funded over the greater of 5 years and the number of years remaining in the 10-year funding schedule.
- Written notice to plan members advising them that a request for an extended amortization period has been made along with the instruction to these members that any comments or questions regarding the request be submitted to both the employer and the Superintendent.
- For companies under CCAA or BIA, consent from plan members or unions must be obtained.
Alternatives to Relaxing Funding Requirements
In line with the proposals mentioned in the Consultation Paper, the concept of a dedicated side fund might be considered as an alternative to relaxing funding requirements. It could work as follows:
a. A special side fund, which would be separate from the main pension fund and from the general assets of the employer, would be created. The pension plan would be granted a priority claim to the side fund in the event of the employer's insolvency, ahead of other creditors, up to the amount needed to satisfy obligations for basic pension benefits.
b. The plan sponsor is allowed to contribute the extra amortization payments required under the solvency valuation in the side fund. Other amortization payments (i.e., those required under the going concern valuation), the employer's normal actuarial cost and the employee contributions continue to be paid into the regular pension fund.
c. During the existence of the plan, the monies held by the side fund may be refunded to the plan sponsor when the pension assets in the regular pension fund exceed the higher of (1) the actuarial liability on an ongoing basis, and (2) the solvency liability.
d. In case of plan wind-up, the monies held by the side fund may be refunded to the plan sponsor to the extent not necessary to cover any excess of the wind-up liabilities over the pension assets in the regular pension fund.
e. The assets held in the side fund are included in the value of assets for the purposes of the actuarial valuations.
f. Such a side fund could also be used by plan sponsors who wish to contribute more than the minimum required under the going concern valuation (e.g., for the voluntary building of a provision for adverse deviations).
Allowing such a side fund mechanism would improve benefit security and provide a tool to reduce the risk of wide fluctuations in future contributions. We would recommend that the Department of Finance investigate the feasibility of such a concept. We acknowledge that amendments to the income tax legislation may be required to accommodate this concept.
As an alternative to the side fund mechanism, we also suggest considering a separate accounting approach for the extra amortization payments required under the solvency valuation. Under such an approach, the extra contributions would be deposited and invested in the regular pension fund, but would be accounted separately. Pension legislation would expressly provide for application of the conditions (c), (d), (e) and (f) above to the separate account.
The CIA would be pleased to participate in discussions with the Department of Finance and OSFI regarding the application details of the above financial instrument, side fund or separate accounting.
Even though we support allowing the use of a financial instrument to guarantee solvency payments and we suggest considering the side fund and separate accounting approaches, such changes should not be seen as reducing sufficiently the current problems related to the uncertainty about surplus ownership. Conventional funding coupled with the alleviation of these problems is a better alternative.
Disclosure of Funding Information
We support greater disclosure to plan members on the financial position of the plan, funding decisions and contribution holidays provided that it is meaningful and does not create excessive administrative expenses. This information could be provided through the annual pension statement or it could be displayed on the plan sponsor website or through some other vehicle.
We agree that plan sponsors should develop a written statement of funding policy for their pension plans. As suggested in the Consultation Paper, such a funding policy should address the sponsor's approach to funding the plan, on both going concern and wind-up bases, the sponsor's policy on contribution holidays, as well as areas such as the key risks faced by the pension plan and the extent to which such risks are addressed by a provision for adverse deviations.
C. Void Amendments
There are other alternative approaches that could be considered to improve the security of pension benefits. Any level of prescribed solvency ratio for void amendments is arbitrary. There is a risk that such a void amendments provision would be too restrictive for plan sponsors and would penalize the plan members. We would rather support the adoption of reasonable minimum solvency funding coupled with the establishment of priorities for retroactively voiding amendments which are not fully funded upon wind-up and clear disclosure to members regarding solvency deficiencies and benefits that may be at risk. An additional protection could be to require the plan sponsor to fund annually the value of pension benefits being paid in the year related to the new amendment, until the solvency deficiency created by the amendment is fully funded.
If the notion of prescribed solvency ratio level is kept, benefit improvements should be permitted if the plan sponsor provides immediate funding to maintain the plan's solvency ratio at the prescribed level (or to fund 100% of the additional liability, if less).
We suggest that the void amendments provision might be applied differently in the case of newly established pension plans. For example, new plans might be exempted from complying with the prescribed solvency ratio level for the first 5 years.
Finally, the void amendments provision should not present unnecessary uncertainties for a plan sponsor and union who are considering a plan improvement, particularly in collective bargaining situations. At present, solvency ratios can change quickly, from month to month, even day to day. In most cases, the timing of an amendment is chosen in advance (i.e., before the solvency ratio can be ascertained) and is driven by a number of considerations other than the solvency ratio on that date. A suggested option would be to allow the determination of a plan's solvency ratio for purposes of meeting a prescribed solvency ratio for plan improvements to be based on a "smoothed" asset value and a "smoothed" liability value to remove anomalies caused by a "point-in-time" valuation. Another alternative is to simply base the test on the last-filed solvency position at the time the benefit improvement is accepted by the union.
D. Full Funding on Plan Termination
We agree with the proposal to require full funding of pension plans upon plan termination. As allowed under other jurisdictions (e.g., Ontario), the full funding could be done through a lump sum payment or by annual special payments, payable annually in advance, over a maximum period of five years commencing at the effective date of the wind up.
For financially vulnerable sponsors that decide to terminate their plans while remaining in business, the Government of Canada could consider extending the funding over 10 years but consent from plan members or union should be required.
The Consultation Paper reports that there was broad public support for full funding on plan termination emerging from the government's previous consultations in 2001. Nevertheless, some plan sponsors might be opposed to this measure unless it is coupled with a satisfactory resolution – for all stakeholders – to the issues of surplus ownership and asymmetric treatment of deficits and surpluses. We would, therefore, caution the government against proceeding with this measure in isolation, without also addressing the related broader public policy considerations.
Negotiated contribution defined benefit pension plans should be exempt from full funding requirement upon termination as, by definition, contributions to such plans are limited to the negotiated rates.
E. Pension Benefit Guarantee Fund
For a pension benefit guarantee fund to be viable in the long-term, the price for the protection must be fair and equitable to each plan sponsor. To achieve this, the premium for the guarantee must take into account at least the following three factors:
- the financial strength of the plan sponsor,
- the degree of underfunding of the plan, and
- the mismatch between the assets and the liabilities of the plan.
While the creation of a guarantee fund has some conceptual merit, we believe that it would be difficult to implement for various reasons. For instance, it would be difficult to assess the financial strength of a plan sponsor particularly if the plan sponsor is a private company. Ignoring this important factor in the determination of the premium would unfairly and anti-competitively penalize plan sponsors that have a low risk of bankruptcy. These plan sponsors would perceive the premiums as another tax that subsidizes underfunded plans of financially weak plan sponsors, creating an incentive to terminate their defined benefit pension plans if the premiums are excessive.
We suggest that the government's efforts might be better directed, at least for now, towards improving the funding environment for private pension plans, thus reducing the very need for a government-supported backstop. A legislative solution to the surplus ownership issue and the inclusion of a provision for adverse deviation to reflect the mismatch between assets and liabilities in the calculation of the solvency liability might be preferable alternatives to a pension benefits guarantee fund over the long-term. The result would be to increase the likelihood that benefit promises are kept in the first place, before we insure those promises as a last resort.
However, if there is a pension benefit guarantee fund then it may need to cover all Canadian pension plans and not only the federally registered pension plans in order to better spread the risk and to promote equitable competition.
The Consultation Paper is a welcome sign that the Government of Canada is committed to improving the security of pension plan benefits and ensuring the viability of defined benefit pension plans.
The current funding regime applicable to defined benefit pension plans can and must be improved. Any revision to the funding rules must reflect the voluntary nature of defined benefit pension plans. The CIA offers its assistance for the development of these new rules. As mentioned in the preceding section, we also encourage the Government of Canada to explore other alternatives aimed at encouraging plan sponsors to both maintain and better fund their defined benefit pension plans.
We are confident that it is possible to adopt appropriate legislative changes implementing a framework that will alleviate the current problems related to the uncertainty about surplus ownership and consequently provide a better environment for the long-term viability of defined benefit pension plans. We encourage the Office of the Superintendent of Financial Institutions, the Government of Canada and other pension regulators and governments in Canada to work together at defining new improved pension standards that reflect the need for increased pension coverage, the risks assumed by the various stakeholders, and the members' concerns about better security. The CIA would be pleased to participate in discussions on this crucial aspect.