Ontario Needs to Gear Up for Major Pension Reform Challenges: C.D. Howe Institute
TORONTO, Aug. 28, 2013 /CNW/ – After five years of smaller reforms,
Ontario should get on with fixing major shortcomings that remain in its
workplace pension system, according to a report released today by the
C.D. Howe Institute. In “Ontario Pension Policy 2013: Key Challenges
Ahead,” author Barry Gros identifies the main flaws of the current
system and urges the government, particularly through its new
strategic pension reform secretariat, to proceed with needed reforms
to ensure affordable pension plans that are sustainable and operate
within a clear set of unbiased rules.
“Since the Arthurs Report on pension reform five years ago, Ontario
pension standards have been updated multiple times – but the most
significant issues now lie ahead,” commented Barry Gros. “Without
action to address these issues, the whole reform process will fall
short of its goals and leave Ontarians with major flaws in their
Further action, said Gros, is needed to address three crucial problems:
-- the low participation rate of private sector employees in employer-sponsored plans;
-- lack of legislative flexibility for jointly sponsored public sector pension plan (JSPP) designs to effectively manage the benefit/funding equation to ensure costs remain at a manageable and acceptable level; and
-- ineffective models for funding valuations and use of surpluses in traditional, single-employer, defined-benefit pension plans (DB SEPPs).
With respect to sparse pension coverage, Ontario should enact the
federal Pooled Registered Pension Plan (PRPP) legislative framework,
said the author. However, it should be revised to require Ontario
employers beyond a specified size to offer such a plan, and auto-enroll
employees who would have the option to opt out. This would ensure the
accumulation of assets needed to support retirement readiness and to
create the scale needed to deliver on the promise of low operating
costs. Furthermore, efforts should be devoted to integrate tax-free
savings accounts into the PRPP package.
In the public sector, taxpayers would benefit from the province
incorporating target-benefit principles into the standards governing
public pension plans, fixing the contribution rate for employers and
ingraining risk management principles in the operation of these plans.
This would help keep plan costs in line, said Gros, reduce the
potential for intergenerational inequities, and broaden the general
understanding of these plans.
Finally, for DB SEPPs, funding levels and access to surpluses are the
primary areas of concern, he points out. Current funding models could
benefit from replacing the combined going-concern and solvency
valuation model with a stronger going-concern valuation model and a new
margin reserve account. “This would prevent overpayments made by
employers during poor financial times to turn into trapped surpluses
when times improve,” said Gros.
For the report go to: http://www.cdhowe.org/ontario-pension-policy-2013-key-challenges-ahead/22573
SOURCE C.D. Howe Institute