Flaherty unveils public pension reforms
Finance Minister Jim Flaherty introduced new rules for public pensions on Tuesday, aimed at putting plans at Crown corporations and other firms on more solid ground.
"We understand the value of secure and sustainable pension plans," Flaherty said in a release Tuesday. "We are proposing a balanced package of measures for the benefit of pension plan sponsors, plan members and retirees."
Among the proposed reforms is a ban on employer contribution holidays unless the pension plan has a five per cent cushion between its assets and liabilities.
Also, plans will be allowed to carry greater surpluses than before. Under existing legislation, federally regulated employers can only over-fund their pension plans by 10 per cent. That threshold will be increased to 25 per cent to provide a greater cushion for pension plans in case of another recession.
And employers will be required to fully fund pension benefits when a plan is terminated. Currently, employers must fund only 80 per cent of benefits. Officials say making employers responsible for full benefits will serve as a disincentive to winding up pension plans.
The reforms would do nothing to address shortfalls in public pensions at companies such as Nortel and Canwest, two firms who have entered creditor protection in recent months. Federally regulated pension plans account for less than 10 per cent of the country's retirement savings.
Ottawa has spent several months consulting on the issue with interested parties across the country, in an exercise led by Ted Menzies, Flaherty's parliamentary secretary.
As part of that process, Ottawa has consulted with the provinces and corporate Canada to address problems in the pension system as a whole. But ultimately, Ottawa remains reluctant to use taxpayer funds to guarantee private pensions.
Ontario is the only province that has a pension benefits guarantee fund, which provides pensioners with up to $1,000 a month in the event a plan fails to provide its full benefit or any benefit at all.
It is funded by corporate contributions, and the government has no legal obligation to top it up. The province has acknowledged that with only about $100 million, the pension guarantee fund is dramatically underfunded.