The federal government’s 2022 budget is addressing long-standing rules preventing defined benefit plan sponsors from borrowing in most circumstances.
In the $56-billion budget, which is expected to easily pass into law with the support of Liberal and New Democratic Party members of parliament, proposes providing more borrowing flexibility to administrators of registered DB plans.
The new rules would scrap a long-standing borrowing restriction limiting plan sponsors to loans with 90-day terms. In its place, a new rule would allow plan sponsors to borrow money for certain purposes. The total amount allowed to be borrowed would be 20 per cent of the value of the plan’s assets.
Under existing rules, which have been in place since the 1970s, a DB pension plan sponsor is forbidden from borrowing in most circumstances. In general, unsecured short-term loans of less than 90 days are acceptable and mortgages for certain real property investments, including ones that offerin rental income streams to pension plans.
When it comes to property developments designed to be sold after construction, borrowing may be in breach of existing rules. Efforts to clarify these rules began in 2020, when the government suspended certain borrowing restrictions. “These standards are designed to manage the risks to the promised benefits of plan members and ensure the stability of registered pension plans,” wrote a government official in a press release.
The budget also included requirements for federally regulated financial institutions, including pension plans, to provide annual disclosures on environmental, social and governance issues. Under the proposed rules, the government would require these reports to follow the framework developed by the task force on climate-related financial disclosures.
And to back up its commitment to continuously improving the governance, transparency and accountability of its pension plans, the government announced its intention to expand the Public Sector Pension Investment Board from 11 to 13 members, with the board’s new seats to be filled by representatives of federal public service bargaining agents.