What every pension framework needs: Sustainability, clarity, harmony

  • December 20, 2017

The CBA’s  Pensions and Benefits Law Section commented in November on a discussion paper released by the Nova Scotia Department of Finance as part of a review of its pension funding framework and other related issues.

While the Section didn’t take a position on policy issues set out in the discussion paper, it did advocate three values that the province should keep in mind when considering changes to the funding model: sustainability, clarity and harmonization.

The funding framework should be designed to be manageable in the long term, fair to stakeholders in all economic environments, and flexible enough to provide counterbalance when the economy shifts, the Section says in its submission.

“The CBA Section suggests a more unified and consistent funding framework. In our view, this would contribute to significant progress in meeting the goal of sustainability through promoting predictability of future funding requirements and could also address the concerns of contribution volatility.”

Any changes to the funding framework should provide clarity on the potential uses of and entitlement to the funds, including any other methods of funding and addressing plans in a deficiency position.

The Section reiterated its belief that funding rules should be harmonized across the country in order to be as fair as possible. The discussion paper notes that several provinces’ recent reforms to solvency funding have been markedly different; the Section notes that if Nova Scotia’s rules deviate from these approaches, “it would further exacerbate the patchwork of funding rules.”

Harmonizing pension rules has advantages for everyone: more regulatory efficiencies for government, and less administrative burden and cost for plan administrators and members.

The discussion paper also tackled questions about target benefit plans – whether the province should create a regulatory framework for them; whether those plans should be limited to unionized workplaces; whether defined-benefit plans should be allowed to convert to target-benefit plans. Section members were not of one mind about the desirability of target-benefit plans, and gave reasoned responses discussing the various perspectives.

The discussion paper also asked whether it was advisable to purchase annuities as part of a de-risking strategy – the Section noted that there is a potential for residual liability; and about permitted investments – the Section says the current federal requirements governing investment are sufficient to protect the interest of the beneficiaries while maintaining flexibility for plan administrators.

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