Amending income tax laws is not expected to trigger any tax revenue losses in the near future because most of the country's pension funds are so under-funded that it could be years before employers are in a position to invest surpluses into their plans.
Other reforms being unveiled by Mr. Flaherty include changes to allow pension plan participants to negotiate changes to their pension arrangements.
The Tories have dismissed calls for Ottawa to step in and offer a backstop for pension plans, arguing this would create a "moral hazard" that could spur companies to take undue risks because of insufficient consequences for failure.
"We talk about protecting pensioners. But we've also got to protect taxpayers," Mr. Menzies said recently.
The combined impact of the global financial crisis, poor fund management and the growing ranks of longer-living retirees has saddled most of Canada's pension plans with crushing deficits.
Watson Wyatt Worldwide, a pension consulting firm, estimates the average Canadian corporate pension plan is 20 per cent short of assets needed to fund long-term pension obligations. The firm estimates this solvency deficit has left a $50-billion hole in corporate pensions funds.
Critics of calls to allow companies to run up bigger surpluses argue that changing the rules would have little effect because shareholders, particularly of publicly traded companies, would likely resist allocating extra money to employee benefits.
As it stands today, the minority Harper government needs the support of 12 opposition MPs in order to obtain a majority to pass a pension reform bill through the Commons. By-elections on Nov. 9 could slightly change this calculation.
Federal political parties are scrambling to stake out turf in the debate over the retirement-savings crisis this week, with the opposition Liberals vowing they'd take a more activist role than the Harper government and Conservatives warning against costly new schemes.
Liberal Leader Michael Ignatieff, his party lagging in the polls behind the Tories, held a roundtable Monday on the country's crumbling private pension system. He suggested he'd expand the Canada Pension Plan, a vehicle that's financed from the pockets of employers and workers.
"That basic commitment that Canadians make to each other about a secure and dignified retirement is now in some question," Mr. Ignatieff told the Ottawa forum.
"There is a widespread feeling ... of insecurity."
Ottawa and the provinces also face calls to intervene far more broadly in Canadians' retirement-savings behaviour, such as enacting new compulsory or voluntary schemes that would steer people toward building bigger nest eggs.
The NDP, which is propping up the minority Harper government, last week proposed that Canadians be forced to buy pension insurance as part of a package of suggested reforms to tackle the problem.
The Tories are proceeding cautiously on the bigger question of inadequate savings, wary of committing Ottawa to any new programs. In May, Mr. Flaherty agreed to study retirement security with the provinces, and reports on this are due before mid-December, when he and his counterparts meet in Whitehorse.
Mr. Flaherty Monday accused the Liberals of jumping on the bandwagon late and offering what he called a "knee-jerk reaction to a serious issue."
Mr. Menzies, Ottawa's point man on pensions, said Monday he doesn't want to prejudge whether the federal government sees a leadership role for itself on the security issue.
He warned against new programs that would saddle taxpayers with big obligations, saying some countries now find themselves unable to afford more elaborate schemes.
"They put in place a system of paying [for]all retirees, but they never put in a system that was adequately set up to pay for it. So they're in a huge deficiency right now."
The Liberals are still drafting their pension platform, but Mr. Ignatieff floated the idea of supplementary savings schemes tied to the Canada Pension Plan, or giving the plan's managers additional responsibility for "retirement security."
Mr. Menzies said a research working group assembled by Ottawa and the provinces in May is studying how the adequacy of retirement income in Canada compares to other countries, among other things.
A key question Mr. Flaherty and his provincial counterparts will face is whether efforts to boost savings will be compulsory or voluntary. Critics of voluntary incentives - such as registered retirements savings plans - say these have failed to generate sufficiently large nest eggs for Canadians.
Liberal finance critic John McCallum said his party will provide its own proposals within a month or so, and these could include expanding the Canada Pension Plan, more tax incentives for savings, and prioritizing pensions in the event of bankruptcy.
"We believe in a major role for the federal government in this area," he said Monday.