Pensions are once again back in the news.
Reports earlier this month noted that pension plan funding was down last year, largely as a result of turmoil in the markets as well as increasing liabilities on employers.
According to media reports, the survey by Towers Watson noted its pension index fell to 72 per cent by the end of the year. At the beginning of 2011, that number was 86 per cent. The index, The Globe and Mail reported, tracks pension plan assets versus their liabilities.
Also noteworthy are reports that employers continue to make efforts to scale back those liabilities, including public-sector entities.
The City of Saint John, N.B., for example, is moving to end indexing of its pensions for municipal employees in a bid to address a $165-million shortfall. Other municipal governments are facing similar challenges as the public sector remains one of the last bastions of widespread use of defined-benefit pension plans.
It’s a good time, then, to review the state of Ontario’s pension rules. While employers may try to enact or negotiate changes such as raising the retirement age or increasing employee contribution rates in order to address their liabilities, a 2008 report on pensions by former York University president Harry Arthurs offered a number of reforms that could address the problems more generally.
In particular, he recommended that the government change the rules to encourage so-called target-benefit pension plans in which the ultimate payout an employer would have to make depends on the performance of the fund’s investments.
The scheme would be somewhat of a hybrid of defined-benefit and defined-contribution plans by more evenly spreading the risk between employers and employees.
The proviso is that target-benefit plans would require joint governance with employees of single entities. That type of arrangement is already common in some sectors that group several employers together.
While the province, which commissioned Arthurs’ report, has moved on some of his recommendations, it has yet to take action on this one beyond preliminary changes and a commitment to explore target-benefit plans as an option for single employers.
It arguably involves more innovation and potential controversy than many other recommendations, but given that we’re once again in funding difficulties and looming uncertainty, it’s time to act more boldly.
Reports earlier this month noted that pension plan funding was down last year, largely as a result of turmoil in the markets as well as increasing liabilities on employers.
According to media reports, the survey by Towers Watson noted its pension index fell to 72 per cent by the end of the year. At the beginning of 2011, that number was 86 per cent. The index, The Globe and Mail reported, tracks pension plan assets versus their liabilities.Also noteworthy are reports that employers continue to make efforts to scale back those liabilities, including public-sector entities.
The City of Saint John, N.B., for example, is moving to end indexing of its pensions for municipal employees in a bid to address a $165-million shortfall. Other municipal governments are facing similar challenges as the public sector remains one of the last bastions of widespread use of defined-benefit pension plans.
It’s a good time, then, to review the state of Ontario’s pension rules. While employers may try to enact or negotiate changes such as raising the retirement age or increasing employee contribution rates in order to address their liabilities, a 2008 report on pensions by former York University president Harry Arthurs offered a number of reforms that could address the problems more generally.
In particular, he recommended that the government change the rules to encourage so-called target-benefit pension plans in which the ultimate payout an employer would have to make depends on the performance of the fund’s investments.
The scheme would be somewhat of a hybrid of defined-benefit and defined-contribution plans by more evenly spreading the risk between employers and employees.
The proviso is that target-benefit plans would require joint governance with employees of single entities. That type of arrangement is already common in some sectors that group several employers together.
While the province, which commissioned Arthurs’ report, has moved on some of his recommendations, it has yet to take action on this one beyond preliminary changes and a commitment to explore target-benefit plans as an option for single employers.
It arguably involves more innovation and potential controversy than many other recommendations, but given that we’re once again in funding difficulties and looming uncertainty, it’s time to act more boldly.
— Glenn Kauth
