The Pension Investment Association of Canada is calling on the federal government to reform pension solvency rules while supporting legislation to introduce solvency reserve accounts and variable-payment life annuities.
In response to a federal consultation paper, the PIAC said while it supports temporary relief measures amid the current economic climate, it cautioned against an approval requirement for the one-year extension of the solvency amortization period and the overuse of letters of credit.
In addition, it said such actions indicate a need for fundamental reform to the federal solvency rules and harmonization among jurisdictions, suggesting changes such as moving to a going-concern plus regime and setting a solvency target below 100 per cent on a temporary while building towards greater regulatory consistency.
While it offered support for guidelines concerning special funding relief as well as a recommendation that plans consider environmental, social and governance factors in their decisions, the PIAC opposed the proposal to require plan member and retiree representation for all plans, noting that most members already have established governance and policies. “A blanket requirement for plan and retiree involvement in decision-making would likely lead to the creation of additional governance layers with unclear benefits for plan sponsors or members in many cases,” the letter said.
The PIAC also offered support for legislation establishing solvency reserve accounts (albeit with a more flexible approach to funding) and variable-payment life annuities, describing the latter as “a key first step in what could be an important innovation in the Canadian retirement landscape.” It recommended the government allow the VPLA market to develop in “a flexible and innovative fashion, subject to a general guidance on process with a view to ensuring appropriate disclosure and actuarially robust structures.”
In addition to the matters discussed in the consultation paper, the PIAC’s letter also recommended the federal government permanently remove the restriction on borrowing by pension plans, describing it as “antiquated and out of step” with standard market practices and supervisory and regulatory guidance.