CFP Submission on Solvency Funding to Ontario

In July of 2016, FSCO issued a call to Ontario Pension Plan stakeholders to provide input on the role of Solvency Funding with respect to current pension plans.

Recently, the CFP completed extensive research to prepare feedback to Ontario for submission to the Panel. Bob Farmer was a member of the panel, representing pension plan members.

CFP wrote to FSCO in our Submission,

“We are told that employers are hard pressed to meet the solvency funding requirements for their defined benefit (DB) pension plans. Ontario is exploring ways to address this apparent concern, including questioning the role for solvency funding in Ontario’s pension regime.”

“Proper solvency calculations are the only means to quantify the amount needed in a DB plan so that it can fully honour its commitments should it be wound up. Solvency funding requirements have been, and will continue to be, critical to the security of the pensions that have been earned by pensioners.”

“Before solvency funding regulations were in place, plans that appeared to be fully funded by the standards of the day were unable to pay the pensions that were owed when the plan wound up. As a result, pensioners suffered losses to their retirement income. Even with the current solvency funding rules, pensioners today commonly face losses when their plan winds up. This is because the current rules leave some plan provisions, such as indexation, out of the solvency calculations, effectively requiring funding to match only a part of the pension commitment. In addition, it can take years to bring an underfunded plan back to full financial strength. If the plan is forced to wind up before that happens, its pensioners are hurt. Ontario’s Pension Benefit Guarantee Fund (PBGF) provides only limited protection against windup underfunding. These factors combine to leave pensioners in a very vulnerable position.”

“The inability of the current regime to protect pensioners is clear evidence that reform is necessary. CFP proposes reform of the pension regime that promises both to improve the benefit security for pensioners, and at the same time to reduce financial obligations on employers.”

“The reform consists of three interdependent parts:

  1. Fix the solvency calculation so that it properly incorporates all plan provisions;
  2. Replace the PBGF with an enhanced guarantee fund (EGF), funded by all DB employers in a manner that ensures that the EGF can pay for any plan shortfalls upon involuntary wind up; and
  3. Retain plan-specific solvency requirements, at a target level lower than the current 100% funding target, and to be no lower than 90%. The solvency requirement would remain at 100% until such time as the EGF is in a position to backstop any windup funding shortfalls.”

“The EGF premium structure can be designed to reward positive plan governance and performance. The funding target and the EGF premium amounts should be established in a follow-up consultation, informed by an actuarial study.”

“Without increasing the protection against potential shortfalls on wind-up through a properly functioning guarantee fund, any move away from solvency funding will significantly increase the risk to members of DB plans.”

The full submission can by clicking on this link:


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