The Certified General Accountants Association of Canada (CGA-Canada) this month published an update to their seminal report on defined benefit pensions plans in Canada. The new report, titled The State of Defined Benefit Pension Plans in Canada: An Update, builds on the findings of the original June 2004 report, confirming the predicted risks and proposes actions, including considering the relative benefits of Defined Contribution programs as a safer long-term solution, for transforming the pension paradigm in Canada.
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“For a company to fail on pension obligations is no more acceptable than not paying an employee their salary,” Rock Lefebvre, CGA-Canada’s Vice-President, Research and Standards, said in a prepared statement. “Canadian employers need to change the way they think about pensions and start looking at them as deferred compensation.”
Both reports focus on single employer, defined benefit pension plans. To maintain year-to-year data consistency, the new report’s analysis and conclusions are based on the aggregate performance of 847 plans reviewed as of December 31, 2003 and 784 plans reviewed at December 31, 2004. These plans represent approximately 30 percent of all such defined benefit pension plans in Canada.
According to the update, the estimated number of deficit defined benefit plans has not only not improved but the percentage of pension plans in deficit has actually increased to 96 percent. The estimated additional funding required to fully fund all the plans in deficit increased by $30 billion to $190 billion as well.
Under-funding is not the only issue that need to be addressed according to the new report. Among the most significant issues are:
- Legislators have given no indication that they are considering alternate methods for distributing pension surpluses in the event of partial wind-ups.
- A large number of plans exist outside the regulatory framework raising questions regarding long-term protection for members.
- Accounting rules allow plans with large deficits to legitimately defer recognition of obligations so that they don’t appear on corporate balance sheets.
- The mounting imbalance of defined benefit plans between public and private sectors will bring about new human capital issues throughout Canada.
- Employers continue to replace or restructure defined pension plans with less financially onerous retirement arrangements.
“The pension situation in Canada is ripe for reform,” CGA-Canada President and CEO Anthony Ariganello said in a prepared statement, “and reform is necessary in order to sustain the lifestyle and economic expectations of Canadians.”
More information on CGA-Canada’s advocacy andresearch programs can be found online at www.cga-canada.org.