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Steve Bellantoni's Submission in Response to Finance Canada's Regulatory Framework for Federally Regulated Defined Benefit Pension Plans consultation:
Dear Dept of Finance:
I am aware that the deadline for comments on the Regulatory Framework for Federally Regulated Defined Benefit Pension Plans has passed. Nonetheless I am hopeful that you will be able to give consideration to my comments.
Writing from the perspective of an employee and user of a defined benefit plan, the main problem with defined benefit plans is the calculation of the Pension Adjustment and the uncertainty it creates for the effective use of RRSP room. Since the present value of defined benefits accruing in any given year may not match the Pension Adjustment, the utilization of RRSP room under a defined benefit plan is not optimal.
While it is true that pre-tax contributions can be made to a Pension Enhancement Account in order to ensure that benefits received match the Pension Adjustment amount, this does not address employee concerns. The "use it or lose it" rule requires that average wage earners carry out complex actuarial and statistical analysis in order to determine whether their invested PEA amount will exceed the value of purchasable defined benefits at retirement. Very few individuals have the skills, information or other resources to carry out this analysis, which is much more complex than simply determining a target portfolio composition based on risk appetite.
The end result is that many people are actually deterred from enrolling in available defined benefit plans because they are not confident that the loss of RRSP room is commensurate to the benefits accruing each year.
Policy should be changed so that the Pension Adjustment amount is calculated using accepted actuarial assumptions, to equal the expected present value of the defined benefits accrued during the year. Pension Enhancement Accounts can then be eliminated.
Public confidence and interest in defined benefit plans would be significantly increased by a clear relationship between the accrual of benefits and the RRSP room used by the Pension Adjustment.