Highlights of the federal government's pension reform package announced Tuesday for federally regulated companies:
- Companies cannot take "contribution holidays" to skip payments to their pension plans unless the plans have a surplus of at least 5 per cent. That means the plans must have assets equal to at least 105 per cent of their liabilities.
- Companies cannot make benefit improvements to their plans if the plan is less than 85 per cent funded, or if the improvements would cause funding to drop below that level.
- Companies must fully fund pension benefits when they voluntarily terminate a plan. This does not deal with bankruptcy situations.
- Pension plan members - including retirees - must receive more detailed annual statements about the financial health of a plan, including the level of assets and liabilities in the plan and a summary of its 10 largest investment holdings.
- Employees' benefits earned in a pension plan would vest immediately rather than as long as two years after they join the plan. This means members could remove their entire accrued benefit if they leave a company with less than two years of credit in the pension plan.
- Companies will calculate the solvency level of their pension plans using a new formula that allows them to average their funded position over a three-year period, helping smooth out the impact of a major hit to plan assets in a single year.
- Companies will continue to have to repay shortfalls in their plans over five years
- Companies can use letters of credit to satisfy solvency payments up to a limit of 15 per cent of plan assets.
- Companies can build up surpluses in their pension plans to 125 per cent of liabilities, up from 110 per cent currently. This is an income tax change that will apply to all companies, not just those that are federally regulated.
- Distressed companies can use a new "workout scheme" to help negotiate new funding agreements with plan members that do not conform with existing funding rules. It is intended to be used in limited circumstances by plans that "critically need" concessions to protect the company.Report Typo/Error