(October 29, 2009) – Canada, home to many of the world’s largest defined benefit pension funds, has announced plans to reform its national pension system.
Conservative Party Finance Minister Jim Flaherty announced reforms Tuesday that would prohibit pension fund sponsors from taking funding holidays unless the fund has a 5% buffer between assets and liabilities; that pensions must be fully funded upon termination; and that funds can now overfund their plans by 25%.
Previously, Canadian pensions only had to be funded 80% upon termination, and current laws limit overfunding to 10%, the reasoning being that this protects the federal balance sheet, as pension contributions are tax-exempt and thus overpayment leads to less income for the federal government.
Less than 10% of Canadian pension plans are regulated by the federal government, and thus Flaherty has announced in Parliament that a working group of the country’s provinces and territories has been created to deal with the issue.
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