The documents prepared by the Office of the Superintendent of Financial Institutions (OSFI) say some pension plans may be given permission to reduce benefits that were previously promised to retirees, according to The Kitchener Record. The OSFI also said that Ottawa will likely have to step in and offer relief for sponsors and their plans.
How the federal government can help is now being considered as part of a major review initiated by the federal Finance Department almost a year ago, said Karen Badgerou-Croteau, managing director of private pensions at the OSFI, in the news report. Extending to 10 years the current five-year deadline for paying pension shortfalls was among the suggestions contained in about 120 submissions made last year to the federal review. A government-run insurance scheme that plans would pay into in case one fell into bankruptcy was another suggestion.
The documents obtained warn that the introduction of a new actuarial standard coupled with the declining interest rates of 2005 will result in much higher funding requirements for most plans in 2006. The OSFI forecasts a rise in the number of pension plans on a watch list for close monitoring by the office.
There were 84 troubled pension plans on the watch list at the end of 2005, up from 75 plans listed in September 2005. The documents said that 72% of private pension plans were underfunded as of June 2005, compared to 53% of plans underfunded as of December 2004.