TORONTO (Reuters) - The Canadian government unveiled three amendments to regulations covering federally regulated private pension plans on Friday that it said will ensure increased protection for plan members and cut volatility in funding corporate obligations.
Key changes include using a three-year average solvency ratio to figure out minimum funding requirements instead of the practice of using current solvency ratios. The government said this will soften the impact of short-term market fluctuations.
Ottawa is also restricting an employer’s ability to take a holiday from contributions to pension plans unless the plans keep a 5 percent funding cushion.
Limits will also be placed on how much a pension plan can invest in resource and real property investments to aid “greater latitude” in building a portfolio, the government said.
“These amendments reflect financial market volatility in recent years, which points to the need to enhance protection for plan members,” said Finance Minister Jim Flaherty in a statement.
“The changes also modernize the rules for pension fund investments and give plan sponsors greater flexibility in terms of investment allocation to allow them to better manage their funding obligations.”
Further changes to the legislative and regulatory framework are planned in coming months, to build on changes announced last October, the government said.
The Office of the Superintendent of Financial Institutions, which oversees federally regulated private pension plans, will soon be publishing guidance to pension plans regarding the new funding rules.
Reporting by Ka Yan Ng; editing by Peter Galloway