The Association of Canadian Pension Management is taking aim at the Alberta government’s funding rules for private sector defined benefit pension plans.
In its response to consultation draft of potential legislative and policy updates for private sector pension laws, the ACPM wrote that the province’s existing funding requirements fail to appropriately balance benefit security with DB plan sustainability and affordability. “Due to the extreme decrease in interest rates and resulting increases in solvency liabilities, the solvency pendulum has swung too far toward benefit security at the expense of the well-being of the plans and plan sponsors themselves.”
Under the existing legislation, DB plan sponsors must ensure funding ratios are at least 100 per cent of liabilities or make additional payments. While most provinces adopted similar rules in the 1980s, Alberta is among the last to maintain this requirement.
In its response, the ACPM called on the Alberta government to allow plans with solvency ratios of 85 per cent to avoid making special contributions, as in B.C. and Ontario. “Cash contributions due to solvency funding are often higher than other provinces that have eliminated solvency funding in favour of going-concern plus, thereby putting Alberta-based sponsors at a competitive disadvantage.”
The funding rules resulted in several unintended consequences for DB plans, wrote the ACPM, noting rules on solvency funding positions make annual budgeting, long-term planning and balance sheet management difficult for DB plan sponsors.
The response also outlined the association’s objections to efforts to improve the existing laws rather than replacing them entirely. “ACPM believes Canada and, in particular, Alberta, needs a long-term solution to DB plan funding rather than additional rounds of tinkering with existing rules.”