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Member, Beacon International Group, Ltd.
TORONTO (Reuters)—Canada unveiled new rules on Tuesday for private pension plans that it said will boost protection for members and reduce funding volatility.
Canadian Finance Minister Jim Flaherty said in a statement that the government plans to restrict an employer's ability to take a contribution holiday unless a 5% funding cushion remains.
Ottawa plans to change solvency funding methodology by basing funding requirements on a three-year average, which it said will make the process less volatile. Employers will be required to fully fund pension benefits on plan termination.
The government plans to increase the pension surplus threshold under the Income Tax Act—applied to both federally and provincially regulated defined benefit pension plans—to 25% from 10%.
"While some of the proposed changes can be introduced by changes to regulation, others will be implemented by legislation, which is expected to be introduced in Parliament," the statement said.
Pension plan managers and federal regulators have worried in recent years about the health of private pensions, with historically low interest rates and an aging population straining many plans.
Many firms hit hard by the financial crisis have also looked for ways to delay making contributions.
These include Air Canada, which reached a deal earlier this year with its unions and retirees for a moratorium on funding its multibillion-dollar pension deficit until 2011.