CHARLOTTETOWN, Prince Edward Island--Major change to the regulatory regime governing Canadian pension plans is critical to creating a sustainable environment for defined benefit plans, industry experts say.

Although the federal government and several provinces have enacted temporary or limited funding relief measures, the actions do not address the real problems with defined benefit plans, said Jill Wagman, a principal with consulting firm Eckler Ltd in Toronto. Those issues include asymmetry of pension surplus/deficit ownership, in which sponsors are responsible for paying off deficits but may not be entitled to plan surpluses, she said.

"We need to cry out for massive regulatory change," Ms. Wagman said during the Assn. of Canadian Pension Management's annual conference Sept. 10-13 in Charlottetown, Prince Edward Island.

The lack of clarity on surplus ownership is a major impediment to the sustainability of defined benefit plans, said Etienne Brodeur, senior director, compensation, pension and benefits for Montreal-based Bombardier Inc., which makes jets, railcars and recreational equipment. "Defined benefit plans are in totally boiling water," he said. "No one would jump into that water."

The Ontario Expert Commission on Pensions is in the midst of a major review of the Ontario Pensions Benefits Act including the surplus ownership issue, Ms. Wagman said. "Ontario is headed in the right direction."

The harmonization of pension laws and regulations would improve the environment for defined benefit plans, but such harmonization may require a constitutional amendment, given that each province has the authority to regulate pensions within its own borders. "Clarification of the legal environment would help a lot," Mr. Brodeur said. "Looking at it from the outside, it's hopeless."

Changing the regulatory system, even if it makes it easier for sponsors to run defined benefit plans, will not address the economic environment that makes it difficult to offer the plans, said Hugh Mackenzie, an economist and principal with Hugh Mackenzie & Associates in Toronto.

The pension industry should establish an alternative for employers and employees that optimizes risk pooling, net investment return and administrative overhead, he said. The alternative he envisions would resemble the Canada Pension Plan--the government social insurance program--because the CPP is an efficient provider of defined benefits, he said.

Mr. Mackenzie asked: "Why not clone the CPP as a conventionally funded DB plan?"

The structure of defined benefit plans needs to change to make them more sustainable, Ms. Wagman said. The benefit plan of the future is neither a defined benefit nor defined contribution plan, but a combination that provides for risk sharing between the member and the plan sponsor, balances benefit security with sustainability and provides a reasonable level of cost stability, she said. Examples of such plans include multiemployer plans, hybrid plans and jointly funded plans.

"Defined benefit plans themselves have structural issues that we need to re-examine," Ms. Wagman said.