Actuaries propose a strategy to bolster pensions
TheStar.com – Business – Actuaries propose a strategy to bolster pensions
Published On Thu Nov 05 2009. By James Daw Personal Finance Columnist
The best pension plans are vanishing. Many employers simply cannot hold up their end of what has become a one-sided deal.
Meanwhile, pension legislation is restrictive, burdensome and far from uniform across Canada. This has stacked the odds against starting decent pension plans without betting a company’s survival.
These deep-seated problems within Canada’s pension system have been exposed and amplified by the recent economic crisis.
Canadian actuaries have faith that pension plans can be revived to provide something close to a traditional defined benefit for more than just public-sector workers. But they say it will take more than minor tweaking.
According to Robert Howard, president of the Canadian Institute of Actuaries, if governments want to improve workers’ chances of adequate retirement income, the ministers responsible for finance and pensions should start formulating a national agenda when they meet in Yellowknife next month.
No such meeting about private-sector pensions has happened in Canada before, so far as the actuaries are aware, and it comes at a critical milestone, said Howard, an actuary with Sun Life Financial Corp.
“Make no mistake about it, this meeting is important,” he said. He added during an interview, “if we make the rules right (for pension plans with a defined benefit) it can be very attractive for employers.”
A national agenda for creating and strengthening pensions is the first of a 10-point action plan Howard unveiled on behalf of his association before the Economic Club of Canada on Tuesday.
The actuaries have no quick fixes for members of pension plans that are now severely underfunded and whose companies have already entered bankruptcy proceedings.
They do, however, suggest the federal government could give underfunded pension plans a higher priority among creditors in a bankruptcy, provided lenders were warned several years before the law came into effect.
Howard welcomed Ottawa’s recent announcement that it will change tax rules to permit federally regulated pension sponsors to keep an extra 25 per cent safety buffer inside their pension plans.
But he predicts no employer that bears the full risk of making up a pension shortfall will take advantage of the change as long as the company is prevented from withdrawing excess funds, without having to share the money with plan members.
The actuaries propose instead that employers be permitted to set up a type of side-fund called a Pension Security Trust.
The employer would get a tax deduction for making extra contributions to the trust, but would be permitted to make taxable withdrawals later. They would just have to keep a minimum safety margin tailored to the riskiness of a particular fund.
To encourage the creation of new pension plans, the actuaries propose removing strict boundaries around the design of permitted plans. Instead, they propose setting principles to protect the rights of plan sponsors and members, without hampering innovation.
The actuaries proposed a change of rules that would give plan members flexibility to work later in life, while collecting a partial pension and making further contributions.
Other pension advocates are pressing governments to start new universal pension plans or expand the Canada Pension Plan to become more of a savings plan than a mere transfer of income between generations.
But Howard argues there is some value in preserving and expanding the best private-sector options for saving to provide a more diverse source of retirement income.
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