The Association of Canadian Pension Management is urging Retraite Québec to provide additional flexibility in the funding of municipal and university defined benefit pension plans.
In an open letter, the ACPM requested flexibility to fund up to 100 per cent of amortization payments from the reserve, noting this change would allow for better management of financial risks and would benefit plan sponsors, members and retirees.
“The current limit of 50 per cent will mean that, once the prior component is well funded, plan sponsors will probably want to eliminate investment risks as much as possible to avoid any future deficit [and] significantly reduce the potential for gains that could lead to the improvement of benefits,” said the letter.
To avoid this scenario, the association suggested the provincial government allow plan sponsors that don’t want to increase the 50 per cent limit to maintain the current provisions in accordance with the agreement applicable to their situation. “This flexibility could be permitted only after reaching a minimum funding threshold — for example, when the reserve reaches the threshold of the provision for adverse deviations or any other minimum financial threshold deemed sufficient.”
The ACPM also suggested the reduction of the amortization period from 15 years to 10 years would increase plan sponsors’ payments to finance actuarial deficits by roughly a third. And it suggested the reduction of the amortization period only be considered if it’s combined with the option of allowing up to 100 per cent of the amortization payments to be financed from the reserve.