Canada Proposes More Flexible Pension Funding Rules

May 4, 2006 ( - The Canadian government has proposed changes to pension funding rules that would give defined benefit plan sponsors more time and flexibility in making up funding deficits.

Business Insurance reports that, under the proposal, the schedule for solvency payments would be extended from five years to 10 years on the condition that plan members are fully informed and that no more than one-third of current plan members or retirees object to the change.

Plan sponsors could also extend the funding period to 10 years if the difference between the five-year payment amount and 10-year payment amount is secured by a letter of credit, according to Business Insurance.

The funding relief will only be available to plan sponsors whose payments are up-to-date and only available for the first valuation report filed with the Office of the Superintendent of Financial Institutions (OSFI) before 2008. OSFI, Canada’s federal pension regulator, has jurisdiction over pension plans in major financial sectors, such as banking and transportation, and estimates that about 72% of the roughly 1,200 pension plans it regulates had a deficit last year.

The proposals are a result of a major review initiated by the federal Finance Department a year ago and come after an OSFI report warning that the pension situation is worsening (See Canada Considers Solutions for Struggling Pensions ).