Background

The Portfolio Management Association of Canada^[1] (PMAC) is pleased to have the opportunity to provide feedback on the Ministry of Finance’s (Ministry) consultation with respect to “A Review of the Solvency Funding Framework under the Pensions Benefits Standards Act: Report on Stakeholder Committee Process” (the Report). Capitalized terms used in this letter but not defined shall have the meanings given to them in the Report.

As background, PMAC represents over 275 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.

Overview

PMAC’s submission on the Ministry’s consultation titled “A Review of the Solvency Funding Framework under the Pensions Benefits Standards Act (the Act): A Consultation Paper” (the Initial Consultation) supported adopting Enhanced Going Concern Funding Rules with a provision for adverse deviation (PfAD). PMAC is pleased to see that the Ministry intends to go in this direction.

However, we believe that additional detail and a more meaningful opportunity for stakeholder engagement is warranted, and that the 28-day consultation period is not sufficient. This is especially the case in light of the Ministry’s intention to enact the amendments by way of regulation prior to year-end when balanced against the importance of ensuring that pension funding rules better support long-term Plan sustainability and benefit security and encouraging DB Plans to continue to provide lifetime pensions to their members and other beneficiaries.

Fundamentally, PMAC questions the rationale underlying the proposed PfAD calculation.  For example, we do not agree with the Guiding Principle that PfAD requirements based on investment mix inappropriately influence decision-making and the suggestion that it is not the Ministry’s role to influence investment decision-making for DB Plans.  The investment mix affects pension plan risk, and we do not view policies aimed at reducing risk as being inappropriate – in fact, this is essential to the long-term stability of DB Plans.

Key Recommendations

 In order to preserve and foster a healthy pension eco-system, PMAC has the following key recommendations stemming from the Report:

1. The Ministry should revisit the proposals in the Report to consider the broader risks to Plans beyond the interest rate risk alone. Moreover, the Ministry should reconsider the Guiding Principle that PfAD requirements based on investment mix inappropriately influence decision-making, as well as the underlying suggestion that it is not the Ministry’s role to influence investment decision-making for DB Plans;
2. The Ministry should provide more specificity regarding the PfAD formula in order to enable stakeholders to assess the potential impact of such a PfAD on Plans, plan members and other beneficiaries, and should consider the unintended consequences of the proposed approach;
3. The Ministry should seek to harmonize pension regulation with other major Canadian jurisdictions so that plan members and other beneficiaries benefit from the same levels of protection and reductions in underlying Plan complexity and compliance costs, no matter their jurisdiction of residence; and,
4. The Ministry should extend the timeframe for comments on the Report.

Read the full letter.

[1] PMAC was established in 1952 and represents firms that manage total assets in excess of $2.5 trillion.  Our mission is to advocate the highest standards of unbiased portfolio management in the interest of the investors served by Members. For more information about PMAC and our mandate, please visit our website at https://pmacorg.wpengine.com/.