Toronto, ON, September 4, 2008 – More than two-thirds of Canadian pension plan sponsors are dissatisfied with the current pension regulatory environment, citing rules of fragmentation across the country, inconsistent governance procedures and uncertainty regarding legal risk exposures, according to a study released today by Aon Consulting, and the Canadian Financial Executives Research Foundation (CFERF), the research institute of FEI Canada.
Almost a third of survey respondents reported an interest in introducing phased retirement arrangements within the next three years, in light of the growing talent shortage across Canada. While the federal government amended the Income Tax Act (ITA) in 2008 to accommodate the development of phased retirement programs, several of the provinces’ pension legislation continues to prevent national employers from taking advantage of the ITA provision.
“This is just one example of the numerous inconsistencies inherent in the fragmented system of Canadian pension regulation,” noted Darla Sycamore, a member of the CFERF Board and FEI Canada’s pension committee. “In particular there is great disparity among various provincial regulations and their application to pension plans. In addition, what we see is provincial regulatory systems falling behind developments on the federal front, such as the ITA’s phased retirement provision.”
Michael Conway, chief executive and national president of FEI Canada noted that, “Urgent modernization and harmonization of Canada’s pension regulation is critical if the country’s employers are to maintain their competitiveness in attracting and retaining skilled workers.”
Additionally, the survey showed that one in five defined benefit (DC) pension plan sponsors have not been active in plan governance and either do not comply with the Capital Accumulation Plans (CAP) Guidelines, which were introduced by the Joint Forum of Financial Market Regulators in 2004, or are not yet aware if they are in compliance with the guidelines. Meanwhile, 17 percent of the survey respondents said they have allocated governance roles and responsibilities for their Plans in accordance with the CAP Guidelines, but have no documented process for monitoring these responsibilities.
“Clearly the Canadian DC pension plan market has significant opportunities for strengthening governance procedures,” said Barry Gros, vice president, Aon Consulting. “The high number of companies supporting DC plans without ensuring adequate compliance under the CAP Guidelines suggests that more work has to be done by pension professionals and regulators to ensure the future financial well being of plan members.
“Although voluntary in nature, DC plan sponsors were expected to operate in compliance with the CAP Guidelines’ reporting, member communication and identification of appropriate investment options at the beginning of 2006. Plan sponsors operating outside of the CAP Guidelines, or are unaware whether they do, face far greater risk of member lawsuits.”
This study also shows that approximately 45 percent of the survey respondents are interested in adopting alternative pension plan structures to the existing Defined Benefit (DB) and DC-type plans. These plan sponsors report a desire to achieve a risk-sharing intermediate between the current DB and DC structures.
Results of the Survey of Pension Plans in Canada, undertaken in 2007, are based on the participation of 61 nation-wide pension plan sponsors, managing a total of 63 Defined Benefit (DB) and 58 Defined Contribution (DC) plans. More than half of the participating plan sponsors engaged with at least one collective labour bargaining group (employee trade union).
For further information on this research contact Barry Gros, vice president at Aon Consulting or Ramona Dzinkowski, executive director, CFERF.
About FEI Canada
FEI Canada is the all-industry professional membership association for senior financial executives. With eleven chapters across Canada and more than 2,100 members, FEI Canada provides professional development, thought leadership and advocacy services to its members. The association membership, which consists of many Chief Financial Officers, Audit Committee Directors and Finance, Controller, Treasury and Tax Executives, represent a significant number of Canada’s leading and most influential corporations. Further information can be found at www.feicanada.org.
About Aon Consulting
Aon Consulting Worldwide (http://www.aon.com/hcc) is among the top global human capital consulting firms, with 2007 revenues of $1.352 billion and 6,335 professionals in 117 offices worldwide. Aon Consulting is shaping the workplace of the future through benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006 and 2007. Aon Consulting is an organization of Aon Corporation (NYSE: AOC), the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. http://www.aon.com/.Tags: Aon