Manitoba should initiate an overall pension funding reform review similar to other provinces rather than continuing to rely on temporary solvency relief measures, according to Kevin Fahey, chair of the Pension Investment Association of Canada.
In a letter to Linda Buchanan, acting superintendent of pensions at the province’s pension commission, Fahey’s comments and recommendations stem from Manitoba’s recent special payments relief regulation, which came into effect on Dec. 31, 2016.
Under the measure, defined benefit pension plans registered in the province can consolidate a solvency deficiency determined under the first valuation report with a review date between Dec. 30, 2016 and Jan. 2, 2019, according to a client advisory report by Willis Towers Watson. Plans can then fund the deficiency over a 10-year period instead of five years.
While some provinces are currently reviewing their pension solvency funding requirements, only Quebec has, so far, adopted going-concern funding. A proposal that includes eliminating solvency funding for certain defined benefit pension plans is on the table in Saskatchewan, while Ontario has proposed enhancing the existing going-concern funding rules while doing away with the solvency requirement.
The government of British Columbia has extended the period over which pension solvency deficiencies can be funded by five years to help plan sponsors manage the financial pressures of funding their plans in the current low interest rate environment.
Read: A look at Quebec’s solvency changes one year on
Read: Eliminating solvency funding on the table as Ontario reviews DB rules
Read: B.C. takes first step to resolve pension solvency funding challenge
In the letter to Manitoba’s pension commission, Fahey argued the country needs a more fundamental solution. “We need to seek a better long-term funding model and we need to come up with a new and more effective valuation and funding methodology.”
Minimum solvency funding rules are continually affecting the feasibility of defined benefit plans, he wrote. “As defined benefit pension plans mature in a low interest rate environment, plan sponsors are still struggling with the large financial burden solvency funding creates, a burden that is clearly worse than expected due to the extraordinary economic circumstances.”
Fahey also pointed out that repeated temporary relief measures show minimum solvency funding requirements are not working. Indeed, Manitoba’s government had enacted two regulations with the same provisions in 2008 and 2011, according to the Willis Tower Watson report.
“As regulators, we encourage you to urge policy-makers in Manitoba to conduct a review of funding policy leading to a single long-term funding methodology which meets the needs of beneficiaries and plan sponsors to balance the need for benefit security and plan sustainability,” wrote Fahey.
Read: 2016 Top 100 Pension Funds Report: Solvency reform on the agenda