The status of federally regulated private pension plans has been a point of discussion for many people, as the large drop in equity markets has caused major funding deficiencies. Under current rules, the decline in market values would require many of the pension fund sponsors to make large contributions to these funds and this requirement could endanger the economic viability of those firms leading to job loss, or worse, bankruptcy.
In a recent editorial in this publication, the problems faced by organizations who cannot meet pension funding requirements was discussed. The majority of Canadians are rightly concerned about the current market conditions and how this will impact their financial futures, in particular as it relates to their jobs, and the stability of their retirement savings.
In light of these concerns, the Federal Government has proposed to extend the solvency funding payment schedule to 10 years from the current time, for solvency deficiencies determined as of December 31, 2008. These extensions will be subject to certain conditions:
Either one of these two conditions would need to be met by December 31, 2009 for the extension to be granted. If neither were secured by the end of 2009, the plan would be required to fund the deficiency over the following 5 years.
Note that the structure and requirements for solvency funding will be the subject of consultations in 2009 for the purpose of reviewing the Pension Benefits Standards Act, 1985 and the changes required to the funding framework required by law to address the issues facing defined benefit and defined contribution pensions.
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