OTTAWA—Canada's federal government announced Thursday that it will reexamine pension legislation and regulation in light of a funding crisis that has impacted most of the country's defined benefit pension plans.

The review will explore the most controversial topics in pension laws and regulation, including the existence of partial plan wind-ups and a requirement that companies fund any deficits within five years.

The federal pension regulator—the Office of the Superintendent of Financial Institutions—has jurisdiction over pension plans in major financial sectors such as banking and transportation. Of the 1,200 pension plans supervised by OSFI, 428 are defined benefit pension plans. OSFI says about half of the defined benefit plans it regulates are underfunded.

Among the topics the government will consider is whether there are any disincentives or obstacles preventing plan sponsors from adequately funding their plans and building up a funding cushion. Some pension experts have argued that last year's Supreme Court of Canada decision in the Monsanto pension case has made employers hesitant to fully fund their pension programs because they may not have control over plan assets if the plans develop future surpluses (BI, Aug. 9, 2004).

In the decision, the Supreme Court required the distribution of surpluses for partially wound-up pension plans. The federal government is examining whether there should be partial plan terminations under federal law and, if so, whether there should be a requirement to distribute surpluses at the time of the partial wind-up of the plan.

In addition, the federal government will be reviewing a suggestion from plan sponsors that it extend the timeframe for funding pension deficits to beyond the five years permitted under current law.

The government made an exception to the five-year rule last year when it extended the timeframe for Air Canada to fund its deficit to 10 years. The airline was in court-supervised creditor protection partly due to its $1.2 billion pension deficit. Finance Minister Ralph Goodale has asked regulators to develop proposals to apply this type of funding flexibility to other companies in creditor protection.

A key topic on which the government is soliciting comments is the viability of a federal pension benefit guarantee fund. While other countries, including the United States, have such an agency, Ontario is currently the only jurisdiction in Canada to have one.

All comments related to pension issues are due by Sept. 15.