Canadian Govt. Helps Employers with Pension Shortfalls

According to a Reuters news report, the funding relief applies to defined benefit pension plans in federally regulated sectors such as airlines and telecommunications, the Department of Finance said. The changes could affect the country’s largest airline, Air Canada, which faces a cash crunch and the possibility of bankruptcy.

The news report said the pensions affected by the regulations represent 7% of all private pension plans in Canada and about 12% of assets.

The key change introduced is an extension of the period for solvency funding payments to 10 years from five years, with the agreement of members and retirees or when the difference is secured with a letter of credit.

The sharp decline in stock prices due to the global credit crisis has led to severe underfunding of pensions. As of last December, over 80% of plans had a funding shortfall, according to the Canadian government.

“Maintaining the current funding requirements over the short term in these difficult circumstances would result in continued financial stress for many plan sponsors, which could affect their business operations and ongoing viability,” the government said in its rationale for the changes.

According to Reuters, the measures that went into effect on Friday also provide the option of extending the period for solvency funding payments by a year for shortfalls reported as of year-end between November 1, 2008, and October 31, 2009. More flexible rules were introduced for government-owned corporations.