These days, many plan sponsors are looking to exit the defined
benefit (DB) world – largely for the following
they want to cut benefit funding and administration costs, as
market volatility and low interest rates drive up solvency deficits
and make planning more difficult;
to achieve better planning and budgeting by making pension
liabilities more predictable for purposes of financial
changes in the accounting rules;
to reduce regulatory complexity and limit the risks associated
with their current DB plans; and
to align local business decisions with those of international
affiliates or parent corporations.
There are a host of options available to plan sponsors who are
contemplating exiting their existing DB arrangements; however, when
weighing these options, sponsors will have to pay mind to the many
hurdles they may face when restructuring, namely, collective
bargaining agreements, plan terms, pension standards legislation,
and employment laws.
In this four part series I will examine these hurdles as they
relate to the following ways in which a DB plan can be
closing the DB portion of the plan to new entrants and
establishing a defined contribution plan for new hires;
implementing a soft 'freeze' where no more future
accruals are permitted under the DB plan, but earnings increases,
as they pertain to previously accrued pension benefits, are
implementing a hard 'freeze' where everything is closed
off and all future service and earnings are transferred to the new
amending the plan to reduce/eliminate ancillary benefits
provided under the existing plan terms.
Regardless of the way in which a company pension plan is
restructured, it is key for employers to communicate these changes
to their pension plans clearly and in a way in which their
membership can understand.
Stay tuned for Part II of the plan restructuring series, which
will address the specific issues relating to the first option -
James advises on legal issues relating to
federally and provincially regulated pension and employee benefit
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
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