A “more tools in the toolbox” approach to temporary relief for federally regulated pension plans

  • February 22, 2021

The CBA Pensions and Benefits Law Section says, in a submission to Finance Canada, that the continuing impacts of COVID-19 represent the greatest potential challenges facing defined benefit (DB) pension plans in 2021.

“We support a short-term, targeted and multifaceted approach that, to the extent possible, balances the need for benefit security with accessible and effective relief from what may be onerous solvency special payment schedules for those experiencing severe financial strain,” the Section writes in its 25-page submission to Finance Canada’s consultation paper entitled Strengthening Canadians’ Retirement Security – Proposals to Support the Sustainability of and Strengthen the Framework for Federally Regulated Private Pension Plans.

The Section suggests Finance Canada approve four guiding principles in considering the issues in the consultation paper: harmonization, sustainability, clarity and retirement income security. “Harmonization is a guiding principle of the CBA Section because it helps reduce unnecessary regulatory burden and lessens administrative costs, especially for multi-jurisdictional plans,” it explains.

However the pandemic does not affect every employer the same way, and the Section recognizes that a one-size-fits-all relief program would not be appropriate. “A ‘more tools in the toolbox’ approach is preferable to allow each DB sponsor to select the options that best address its challenges,” the Section says, adding that employers should be allowed to choose more than one option or change options in the future “to address situations where the actual impact of the pandemic on the employer during 2021 is different than expected.”

Given how desperate the situation of some employers might be, the Section cautions that time is of the essence. “We strongly suggest relief measures that can be implemented without complicated or time-consuming approval processes.” The temporary nature of the relief should be sufficient to mitigate the need for a rigorous process.

The unintended consequences of guidelines

Pressing needs or not, guidelines should avoid giving employers the idea that bail-out money is easily available. While supporting temporary measures for companies in “extreme financial straits whose DB pension plans are at risk,” there should be predictability, accessibility and transparency in the process included in ministerial guidelines, says the Section.

However it warns the presence of guidelines may inadvertently send the wrong message that “special funding relief is neither rare nor extraordinary” and give enterprises a false sense of security, which may “increase exponentially the applications for extraordinary relief, increasing regulatory burden.”

The bottom line is that the process should not be seen as a quick way for companies to shirk their pension plan responsibilities. The guidelines should make it clear “that special funding relief is rare and extraordinary.”