Home > DocuBase > Article

« All DocuBase Articles

 

Monday, 9th July 2007

Ill-Defined Benefits: The Uncertain Present and Brighter Future of Employee Pensions in Canada

Ill-Defined Benefits: The Uncertain Present and Brighter Future of Employee Pensions in Canada (PDF; 227 KB)
Source: C.D. Howe Institute

The problems of employer-sponsored defined-benefit (DB) pension plans in Canada raise two issues: the need for short-run measures to limit the damage; and the need for new pension models to prevent their recurring.

The DB sector's immediate preoccupations are the result of changes in the economic environment -- in particular, a decline in long-term interest rates -- that caused their balance sheets to deteriorate, and of changes in accounting standards to more market-based methods that revealed the underfunded state of these plans in stark form.

The immediate policy challenge is to ensure the recovery and/or restructuring of sick plans, and the continued health of sound ones. Extra time and financial scope to work off deficits are good, but current limits on contributions to plans should rise or disappear, while legislation to establish clear title to surpluses for sponsors who must cover deficits is badly needed.

Accounting standards should remain strict, however, to ensure that emerging problems are seen and addressed. It would be a mistake to privilege government-employee plans by relieving them of the same solvency requirements that apply to private-sector plans. Another wrong turn would be resorting to government-sponsored insurance to backstop plans, since this approach creates moral hazards and future liabilities for taxpayers.

In the longer run, policy should sustain and encourage a thriving occupational pension sector that helps individuals save for old age and helps finance the investment that underpins economic growth. But DB plans were in decline long before the recent crisis, and evidence is mounting that the classic single-employer DB plan has fatal agency problems -- evident particularly in the tendency for these plans to mismatch assets and liabilities in ways that exposed them to risks far larger than sponsors or participants understood.


Category:

Source:




Please note: DocuTicker's editors collect citations for full-text PDF reports freely available on the web but we do not archive these reports. When you click a link to find and/or download the report, you are leaving the DocuTicker site. DocuTicker makes no representations regarding the ongoing availability of any report or any external resource. Links were accurate as of the date of posting.

« All DocuBase Articles







 

 
 
 

Article Categories

All Article Categories »

Sources

All DocuBase Sources »

Source Categories

All Source Categories »

Archive

All Archives »