The McGuinty government’s pension reforms build on the recommendations of the Arthurs Report. Arthurs has a labour relations background and the recommendations reflect that. What’s missing is a solid financial focus.
The reforms include a nod towards improved funding rules, but never clarify how much surplus a plan should hold. They quickly jump to new rules regarding contribution holidays, but ignore the disastrous impact that economic downturns can have on a plan’s finances . At best, the reforms can be described as promoting best effort funding. Perhaps the reforms are trying for some kind of risk balance between the sponsor and plan member – but, whatever happened to the notion that a promise made is a promise kept?
It’s not that great regulation is impossible. One only has to look at insurance company regulation to see how a strong financial focus makes a real difference. Insurance companies are required to hold extra reserves (surpluses) that take into account the nature of their liabilities and the riskiness of their assets. On top of this, Assuris provides additional protection to policyholders should an insurance company become insolvent. This protection is more than double that offered by the PFGF. And, unlike the benefits for pension plan members, the benefits for insurance company policyholders take priority over the creditors and bond holders of the insurance company. The result – no insurance policyholder has lost money due to insolvency. If only the members of pension plans had the same protection.
Pension plans should be as secure for plan members as annuities purchased from an insurance company. Promises made should be kept. McGuinty’s complex reforms fail to deliver.
Keywords: finances, pension reform