© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the October 2005 edition of BENEFITS CANADA magazine.
The Law: A world of concerns
The ACPM’s defined benefit recommendations cater to one group: actuaries. Shouldn’t plan members have a voice?
By Murray Gold

THE ASSOCIATION OF CANADIAN PENSION MANAGEMENT(ACPM)has once again ventured into the public policy arena, this time with a potpourri of suggestions directed towards the roles and responsibilities of actuaries and funding rules. It recently released Back from the brink: Securing the Future of Canada’s Defined Benefit Pension Plans: a list of recommendations for preserving the defined benefit(DB)system.

Fundamentally, the question that concerns actuaries—and should concern everyone else—is whether they owe obligations to pension plans and their members when they provide actuarial services, or whether their obligation is only to the employer. On these important questions, the ACPM tows the actuarial party line. Actuaries, it argues, are simply advisors, and not fiduciaries. The association advocates that funding decisions be someone else’s responsibility(the employer’s).

While ACPM stops short of suggesting sensitivity testing analysis be mandatory, it advocates that these expensive studies be promoted. It doesn’t consider the merits of the pension industry’s heavy reliance on this self-regulating profession, nor the conflicts that now plague its delivery of actuarial services.

Because actuaries are self-regulating, they make many of the rules that govern their own profession. This is a recipe for conflict; actuaries competing for lucrative HR consulting work may not have the guts to deliver hard news to the same employer who is also administering a pension plan. Nothing could be more dangerous to the industry than this cozy relationship. It is disappointing that the ACPM has become the advocate of this special interest group.

Where does the ACPM see safeguards in all of this? Only in the government’s role in setting out minimum funding standards. On funding, the ACPM eliminates the possibility of abandoning going-concern funding as a legislated requirement and canvasses a wish list of funding changes. It suggests regulators focus exclusively on solvency funding, and stop requiring going-concern valuations for filing purposes. ACPM also advocates the elimination of smoothing for solvency valuations, the lengthening of solvency funding periods, the elimination of funding for “grow-ins” and the possibility of tying funding targets to asset mix(higher solvency funded ratio targets for plans with higher investment risk). It suggests the development of a new “solvency normal cost” to replace the going concern determinations that now inform current service costs. All in all, these suggestions amount to a considerable weakening of the funding rules that protect DB pension plan members in Canada. At the same time, ACPM opposes the extension of pension insurance arrangements such as Ontario’s Pension Benefits Guarantee Fund.

The association claims that weaker funding rules will preserve and expand DB plan coverage. But it fails to identify a precedent and jurisdiction in which weaker funding rules have led to more pension coverage. Indeed, weaker funding rules lead to only one thing: poorly funded pension plans.

Though it advocates a “balanced consideration of stakeholder interests,” the ACPM has failed to achieve such a balance even within the committee it created to write this report(the committee didn’t include anyone from the member side of the industry).

As a consequence, no consideration has been given to issues of concern to members: the steady erosion of funded positions because of contribution holidays; the taking of contribution holidays during a triennial cycle even when the employer knows the plan surplus is gone; the fact that inflation remains, outside the public sector, a risk that is overwhelmingly borne by retirees; the fact that, outside Ontario, the risk of bankruptcy is borne exclusively by members who, having participated in a pension plan all their lives, can find themselves, in their 70s, with dramatically reduced benefits.

The goal of saving the DB system is admirable. But its recommendations won’t achieve this. They will simply degrade the system we have.

Murray Gold is a partner with Koskie Minsky in Toronto. mgold@koskieminsky.com


Copyright © 2021 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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