On March 13, 2009, the Canadian
federal government initiated a consultation process on federally
regulated pension plans.1 In response, a group of seven
influential companies, each with large federally regulated pension
plans, prepared a joint submission, which is garnering much
interest. The so-called Group of Seven comprises Air Canada, Bell
Canada, Canada Post, Canadian National Railway Company, Canadian
Pacific Railway, MTS Allstream and NAV CANADA and is supported by
the Federally Regulated Employers – Transportation and
Communication, which includes TELUS and VIA Rail Canada.
The consultation process stems from
(and the Group of Seven's submission makes reference to) the
temporary solvency funding relief for all federally regulated
defined benefit pension plans proposed by the government last
fall2 and confirmed in the 2009 budget. Specifically,
the amortization period for solvency deficiencies under the
Pension Benefits Standards Act, 1985 was extended
temporarily from five to ten years for the purposes of calculating
pension solvency for 2008. To access these temporary measures,
companies must obtain consent from plan members and retirees or a
letter of credit securing the difference between the five- and
ten-year payment schedule, before December 31, 2009. The 2009
budget also contained an increased limit under the asset-smoothing
method to 115%, from 110%, of the market value of plan
assets.3 However, the government stipulated that any
deferral of funding that results from an asset value in excess of
110% will be subject to a deemed trust. The draft regulations
promised by government for public comment have not yet been
In its submission, the Group of
Seven requested that the government make the temporary solvency
funding relief permanent and remove the conditions required for
access. The submission proposes additional safeguards to balance
the increased risk borne by plan members and pensioners if the
conditions are removed, including greater disclosure of the
plan's funded status, annual actuarial valuation filings and
full funding of any deficit on plan termination. The Group of Seven
has also requested the elimination of the proposed deemed trust
over any asset-smoothing values in excess of 110%.
The rationale underlying the Group
of Seven's submission is not new. Defined benefit plan sponsors
have long argued that the stringent funding requirements
unnecessarily divert money away from operations, thereby damaging a
company and its employees and pensioners. These problems are
exacerbated by the current market volatility and the cash strain it
is generating. In addition, the need for pension reform generally
and funding reform specifically is not limited to the federal
jurisdiction. Alberta, British Columbia, Ontario and Nova Scotia
are currently reviewing their pension legislation, and pension plan
funding has been identified as a central issue for each.
Several trade unions representing
members and former members of pension plans sponsored by Air Canada
have already made a submission to the Department of Finance
responding to the Group of Seven.4 As pension
consultations move forward, it is expected that many more employer
and employee lobbying efforts will weigh in on the Group of
We view the Group of Seven's submission as a constructive
step toward reforming and strengthening federal pension legislation
and we look forward to government action on this proposal and
others like it. The public consultation process is scheduled to
last until April 17, 2009, and legislative and regulatory
amendments are expected in fall 2009.
1. Federally regulated pension plans are plans set up for
the benefit of persons employed in connection with certain federal
works, undertakings and businesses that are regulated under the
federal Pension Benefits Standards Act, 1985.
2. Federal government's November 2008 Economic and
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