Thank you, Mr. Chair.
Good evening. My name is Kathleen Wrye. I'm the director of the pensions policy team at Finance Canada. I'm here today to answer your questions about this private member's bill, Bill C‑228. I would also like to take this opportunity to provide a bit of context on the funding requirements in federal pension legislation, which is the Pension Benefits Standards Act, or PBSA for short, and how the legislation works to protect the pension benefits of defined benefit plan members and retirees.
I will also provide a few of the key comments we have on the proposed amendments to the PBSA in Bill C‑228 and how they interact with existing provisions in the act.
Under the PBSA, the federal government regulates the pension plans of Crown corporations and private sector plans covering areas of employment under federal jurisdiction, such as telecommunications, banking and interprovincial transportation, as well as private pension plans in the three territories.
The Office of the Superintendent of Financial Institutions is responsible for supervising federally regulated plans with the mandate to protect the rights and interests of plan beneficiaries. At this time, there are over 1,200 federally regulated pension plans. Over 400 of those plans are defined benefit or a combination of defined benefit and defined contribution. Approximately 7% of pension plans are federally regulated, with the remainder being regulated by the provinces.
The PBSA sets forth a number of requirements in respect to the funding and administration of plans that are designed to protect and promote pension benefit security for plan members while acknowledging that the financial health of plan sponsors is important for the continued operation of these plans.
Under the PBSA, there is a specific requirement for plan assets to be held separate from those of the employer. This protects plan assets from being seized by creditors in the event of bankruptcy proceedings.
Further, federally regulated defined benefit plans are generally required to be 100% funded on a solvency basis, which means that they must have enough assets to purchase annuities from a life insurance company to provide the promised pensions in the event of an employer insolvency. The employer is required to fund any funding shortfalls within a period of five years. As of December 31, 2021, the average estimated solvency ratio of federally regulated defined benefit plans was at 109%, meaning that the assets of these plans were, on average, 9% higher than their solvency liabilities.
To address solvency deficits and ensure benefit protection, plan sponsors are able to obtain a letter of credit in lieu of making any solvency special payments up to a limit of 15% of the plan solvency liabilities. The letter of credit amounts would be paid into the plan in the event of an employer insolvency, similar to insurance. Plan sponsors are also able to obtain life annuities from regulated life insurance companies either by purchasing them as a planned investment or by having insurance companies make pension payments directly to retirees. Transferring the obligation to make these payments to a life insurance company helps to secure pension benefits for plan members and retirees.
The use of insurance to meet funding requirements as proposed by the amendments in Bill C-228 would not be very different from the existing tools available to plan sponsors under the PBSA. However, I would note that the existing PBSA provisions are accompanied by a number of safeguards to ensure that pension benefits are protected, such as details regarding which institutions can provide letters of credit to plan sponsors. The current bill does not include any such safeguards to ensure that the insurance to be used would be appropriate for protecting retirement benefits.
I would also like to take this opportunity to raise the consideration related to the amendments regarding transparency requirements in the bill. Bill C-228 contains amendments that would require the superintendent to consult with the Office of the Chief Actuary on its annual report prior to its being tabled in Parliament, and to send this report to provincial ministers of finance and provincial security commissions. I would note for the committee's consideration that neither the Office of the Chief Actuary nor provincial ministries of finance or security commissions have any roles or responsibilities with respect to federally regulated private sector pension plans. As such, it is not clear what these amendments are intended to achieve, in particular as this report is already made available on OSFI's website.
To close, I would like to thank the committee for allowing me to provide some additional context and raise these considerations as part of its work to study the bill.
I look forward to answering any questions you may have or discussing other considerations with respect to the amendments to the PBSA proposed in Bill C-228.
Thank you.