Thank you, Siim.
First, I'll mention several of our proposed changes that are designed to address concerns of plan members.
We support, in conjunction with our other recommended improvements, the following conditions being made mandatory: first, a requirement that the plan sponsor fully fund any deficit upon plan termination, either in lump sum or amortized over five years; second, a requirement that each plan file an actuarial valuation report each and every year; and third, a requirement that each plan provide greater financial disclosure to all plan members, disclosure that would include the plan's funded status, the plan's investment policy, and a statement of funding policy. These are important changes that will provide plan members with greater confidence in the security of their pension plans.
We also believe that the best security for plan members is a financially strong plan sponsor. To further enhance that security and justify that confidence, other improvements are also needed. The first is a permanent extension of the solvency deficit funding amortization period from five years to ten years without conditions such as member consent or letters of credit.
The second is a discount rate for solvency calculations that is better aligned with the marketplace and that takes into account the long-term nature of our pension liabilities, which extend decades into the future. The AA corporate bond index is the preferred benchmark discount rate. The former Governor of the Bank of Canada, David Dodge, provided BCE and Bell Canada with an expert opinion highlighting the importance of a prescribed discount rate that is more stable and better representative of the true discount. He notes the disconnect between using a discount rate at a point in time to measure liabilities that stretch decades into the future. Canada's solvency funding rules are among the most conservative in the world, in particular when compared to the United States and the United Kingdom.
The third improvement we are seeking is to allow sponsors to retain asset-smoothing methods for solvency funding purposes without a deemed trust requirement.
And finally, the fourth improvement, for sponsors of indexed plans, is the exclusion of indexing from the calculation of solvency liabilities when determining solvency amortization payment requirements. We believe that our recommendations work extremely well to provide balance. The extension of the amortization period is the first. It's designed to calculate the funding to require all future pension liabilities as if the plan sponsor were poised to terminate or wind up the plan. The unfortunate consequence of this is that the resulting funding requirements can be very large and thus actually pose a harmful risk to a company's financial health. Lengthening the amortization period to 10 years is critical to making solvency funding more manageable for companies.
Recognizing the need for a balanced approach, and therefore in conjunction with the longer amortization period, the second change we would need to talk about is the new requirement for the annual funding of valuations.
Employees and pensioners seek confidence that their fund is well capitalized. The annual assessment will bring greater certainty. It mitigates significant fluctuations in capital requirements and guarantees immediate intervention in the case of solvency deficits. I wish to point out that the Canada Labour Congress, as well as other pensioners' associations, support these annual assessments.
Our firms have analyzed the figures and I can say with confidence that an amortization period of 10 years, coupled with annual assessments, would have very little impact on contributions over the long term, as well as over long-term assets, relative to current rules. Nonetheless, having significantly less unstable contributions would have been an enormous advantage for our companies.
In conclusion, the implementation of FETCO's recommendations will result in significant benefits, as follows: first, the volatility of solvency funding will be smoothed out; second, without that volatility, companies will be able to plan their capital investments more effectively and have more to invest during periods when investment is needed most; and third, pension plans will continue to be properly funded and members fully protected.