nonexistent or inadequate pension insurance, in case the plan sponsor defaults
- lack of transparency on the funded status of pension plans (reporting requirements inadequate: frequency and discretion in parameters used for surplus/deficit calculation)
- in bankruptcy (reorganization or liquidation) pension plan deficits must line up with unsecured creditors
- pension/accounting rules discourage companies from overcontributing to plans (e.g. excess assets in plan are not “owned” by the sponsor, even though sponsor responsible for shortfall)
- commuted value not always fully transferable to an RRSP
- commuted value taken by an individual may not properly reflect underfunded status of the plan
- pensioner paid private insurance coverage for credit event of the plan sponsor
- pension priority in case of plan sponsor bankruptcy
- changes to Pension Adjustment formula pro- and retro-actively to reflect the risk of underfunding
Pension Reform brief was presented to the Ontario Expert Commission on Pensions on November 1, 2007- Problems and solutions for DB pension plans and a proposal for pension system revolution.
The minimum requirements that real pension reform must address are:
- Encourage or require adequate retirement savings rate of Canadians
- Provide low-cost vehicle for professional management of retirement assets (without constraint of CPP cap and accept transfers from existing wound-up DB, DC or RRSP plans)
- Provide low-cost longevity insurance options to deal with longevity risk (provide lifetime income, as well as low-cost decumulation strategies for un-annuitized assets
- Secure existing commitments to already earned private sector DB pension plan benefits: by strengthening regulatory framework to prevent plan underfunding and modify BIA/CCAA to increase priority of pension plan shortfalls in case of sponsor bankruptcy.