Ontario Needs to Gear Up for Major Pension Reform Challenges

TORONTO, - 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.

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"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 pension system." 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, click here: