The Association of Canadian Pension Management said that defined benefit pension plans are in danger unless governments change the rules.

The association -- which represents 700 public and private pension plan sponsors, managers and administrators -- said Wednesday fewer Canadians will be covered by defined benefit plans in the future, and many plans will be underfunded.

The pension managers group released a report that said Canada's current rules and legislation do not encourage employers to continue offering company-sponsored defined benefit plans as a retirement savings option for their employees.

Defined benefit plans typically guarantee members a retirement income based on a pre-set formula and a member's years of service with a company. For example, an employee who had 35 years of pensionable service, might get 70% of the average of his/her best five years salary upon retirement.

The percentage of Canadian workers covered by such plans dropped to 34 per cent from 44 per cent from 1992 to 2003, with the decline most significant in the private sector.

Many companies have switched to defined contribution plans, in which the employer and employee put a set amount of funds into the plan, but there is no guarantee what the value will be when the employee draws a pension.

The association said existing rules do not encourage adequate funding -- which results in less security for workers.

Paul Litner, chairman of the association's funding issues task force, said governments should review current funding rules for these pension plans and remove the barriers to rational plan funding.

For example, one barrier that plan sponsors face is that they are responsible for funding shortfalls, but are prevented from accessing excess funds. The pension managers say this can lead to minimum funding strategies which put benefit security at risk.

The report recommends strengthening disclosure requirements around plan funding and ensuring that plans have a written funding policy. It suggests amending the Income Tax Act to enable plan sponsors to better manage the funding of their plans.