August 24, 2010 / 9:00 PM / 7 years ago

Ontario outlines plan to toughen pension rules

TORONTO (Reuters) - Ontario will toughen pension funding requirements for companies and bolster its guarantee fund as it works to fix a pension system hit hard by the financial crisis, the Canadian province said on Tuesday.

The changes, included in legislation to be introduced this fall, come after the provincial government spent hundreds of millions to backstop the pension plans of firms like Nortel Networks Corp and General Motors Co.

“These rules will help reduce, hopefully eliminate, the kind of moral hazard I would associate with companies and employee groups agreeing to benefits without properly funding them,” Ontario Finance Minister Dwight Duncan told reporters.

Canada’s most populous province, home to much of its industrial base, plans to tighten the rules for valuing pension assets and liabilities, making it more difficult for companies to avoid making contributions when plans become underfunded.

Companies would also be prohibited from taking “contribution holidays” unless plans were funded to a certain threshold. And they would have to act more quickly to fund plans if benefits are improved.

The government will also shore up the province’s Pension Benefits Guarantee Fund, an insurance net for pensioners of failed companies, by hiking fees for plan members. It estimated that if the reforms had been implemented last year, this would have raised C$30 million ($28.3 million) for the fund.

A ministry statement said the fund does not have enough cash to cover new claims anticipated by the government in 2010. The baby-boom generation heading into retirement is also expected to put a strain on its resources.

“For over 20 years, governments have neglected addressing these challenges because these challenges are real and difficult and require ... a fine balance,” Duncan said.

The province earlier this year put C$500 million into the fund to help pay Nortel pensioners, among others.

Reporting by Claire Sibonney; Editing by Jeffrey Hodgson

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