Outdated solvency regulations, which measure a defined-benefit pension plan’s health if it was forced to wind up immediately, have weakened the ability of many to cope with the current crunch (Pension Plans Suffer Historic Losses – Jan. 9).
Those calculations are tied to long-term Bank of Canada interest rates, and even healthy employers, with no desire to wind up pension plans, have poured money in year after year as those rates declined. Policies designed to keep interest rates low to stimulate the economy have been the worst enemy of DB plans.
Many different kinds of defined benefit plans exist. Some are more or less vulnerable to solvency deficits, some are more or less vulnerable to going-concern deficits, which also require special payments.
One solution clearly does not fit all. But all plans would benefit from immediately suspending all special payments – the ones not needed to fund current obligations to pensioners and active members – while we study how to bring the pension environment in line with what has happened to our economic environment in the past decade.
Scott Edmonds, Vice President, Canadian Media Guild
Letter published in the Globe and Mail on January 10, 2009.