There are really several questions there. How did the situation arise? What other actions are then appropriate in order to deal with it?
First of all, as key background, the legislation federally, as in many other jurisdictions in Canada and abroad, deliberately permits defined benefit pension plans to operate at a deficit. It does that because it's highly unlikely that sponsors would otherwise be willing to put in place defined benefit arrangements, given the fluctuations in asset markets, and so on. The regulations currently provide, and this is similar to most other jurisdictions, that so-called solvency gaps, once identified, need to be funded over a five-year time period.
The increase in the deficit position of defined benefit plans arose from several factors, as you said, and a couple of others that you didn't mention.
One, there initially was a pullback in equity markets, if we go back a couple of years. This did not come about over the last six months. It's something that's been developing over the past couple of years, and its something that we at OSFI have been talking about enacting for the last couple of years. Equity markets pulled back a bit; there's been some move back, of course, which has helped.
Secondly, long-term interest rates significantly declined, and long-term interest rates are what go into the actuarial valuation of the liabilities. The lowered long-term interest rates have significantly increased the value of the liabilities, when you do the evaluation of the plan.
There have also been some changes in actuarial rules on how you value these kinds of liabilities. The rules are not set by the government or by OSFI. They're set by the Canadian Institute of Actuaries. In particular, the Canadian Institute of Actuaries changed the rules about how fast you recognize declines in interest rates. Over the last nine months, that has contributed to quite a significant change in the deficit position of a number of plans.
There were also certain plans that took contribution holidays, and there were certain plans that had benefit improvements. They cut into surpluses and perhaps left less room. That's permitted under the rules and regulations, but it may have left less of a cushion to deal with the downturn.
Fundamentally, we have a variety of tools at OSFI, and those were enhanced in the mid-1990s, to allow us to intervene when we think the situation is likely to be too detrimental to pension plan members. We've been very actively using those tools for the past couple of years, certainly since the decline in solvency positions started.