Re: Reform of Ontario’s Funding Rules for Defined Benefit Pension Plans: Description of New Funding Rules
The Portfolio Management Association of Canada1 (PMAC), through its Industry, Regulation & Tax Committee’s sub-committee on pensions, is pleased to have the opportunity to participate in the Ministry of Finance’s (Ministry) consultation with respect to the Reform of Ontario’s Funding Rules for Defined Benefit Pension Plans: Description of New Funding Rules (Consultation).
Overview
As background, PMAC represents over 240 investment management firms registered to do business in Canada as portfolio managers. PMAC members manage investment portfolios for, among others, private individuals, foundations, universities and pension plans.
PMAC is supportive of Ontario’s goal of seeking stakeholder feedback on amendments to the defined benefit pension plan (Plan) funding rules. PMAC supports efforts to ensure that Plans’ solvency funding approaches are appropriate and that pension legislation encourages the establishment and maintenance of workplace Plans that ensure secure retirement benefits for their beneficiaries.
Defined benefit plans are an integral part of Canadians’ retirement income savings, even as increasingly fewer of us are covered by such Plans as a result of increased complexities and expenses in funding them.
We thank the Ontario government for its continuing work to review the regulatory framework for pension funding aimed at strengthening the province’s retirement income system.
General Comments
PMAC’s members are attuned to the funding pressures facing Plans as a result of a relatively low interest rate environment. The temporary solvency funding relief provided by the Ontario government in 2009, which was extended in 2012 and again in 2016, was a constructive and practical solution to address the impact of the global recession of 2008. We applaud the Ministry for recognizing the importance of, and need to, assess appropriate amendments with respect to the Plan solvency funding issue longer term.
In reviewing the Consultation, PMAC members raised concerns with two aspects of the provision for adverse deviations (PfAD) calculation. The first concern relates to the need to reflect differences between types of fixed income assets to incentivize desired investment behavior, and the second concern relates to the need for greater distinction between specified alternative investments to distinguish between those that have better liability hedging characteristics from those that do not. Members also expressed their strong preference for harmonized pension legislation across all Canadian jurisdictions. Our comments on these issues are set out in detail below.