Furthermore, because the proposals mainly address federally regulated plans, it doesn’t directly impact Nortel, which is provincially regulated.
However, under principal three – Resolution of plan-specific problems – there is “generally good news” on so-called workout schemes for distressed federally regulated pensions where the sponsor is in severe financial difficulty. This provides more flexible rules so plan members and plan sponsors can negotiate amicable resolutions. This is something Air Canada did last week, when it got a two-year moratorium on amortization payments for pensions and agreed on a way to boost funding over the following three years.
Markham feels the new measures “don’t provide a particularly strong solution to the funding volatility plan sponsors are facing.” There were industry demands for “somewhat more” than has been offered under the Flaherty plan. These included a 10-year permanent amortization of solvency deficits instead of five, and the ability to do triannual valuations instead of the annual ones now proposed. And they’ve been given the ability to use properly structured lines of credit to cover solvency payments. “A year ago that wouldn’t have helped because you couldn’t get credit. Now they would see that as more of an advantage.”
But the devil is in the details, Markham says. “They don’t actually say how a surplus will be treated in a partial windup. There are things that are unclear and that will have to be fleshed out in the coming months. There are unanswered questions such as what happens to surpluses when a company is split in two.”
The Superintendent can still declare a partial wind-up. Markham says sponsors were willing to grant immediate vesting in order to get that ability eliminated “and they will not be happy about this outcome.”
Urgency was appropriate but reform must be comprehensive, not piecemeal
While it seems that the government rushed these proposals out with unseemly haste, Eng says she “supports the urgency. I don’t know if this will be enough to cover all the issues people have raised or if it will upset the balance in relation to other issues. I’m cautious because it needs to be part of a comprehensive package rather than piecemeal.”
Eng says you can’t just deal with those who already have pensions and forget about those with none and there’s precious little to help those earning low wages. “The only way to help them is to increase OAS and GIS.”
Keywords: pension reform, pension
