Solvency exemption is on its way

On August 24, the provincial government announced a second package of proposed reforms to pension legislation. CAAT Plan officials were very pleased to note that the package includes a proposal for a permanent exemption from the requirement to file solvency valuations for jointly sponsored pension plans such as ours.

This exemption is one of a number of proposals contained in the 2008 report of the Expert Commission on Pensions that the government is planning to adopt. This is the first significant update to pension legislation in more than 20 years. The proposal for a permanent solvency exemption will impose certain conditions on jointly sponsored plans. Early indications are that the CAAT Plan will be able to meet these conditions.

As you have read in past newsletters, representatives of our Plan, along with other large jointly sponsored Ontario plans, have been advocating for this exemption. Our reasoning was that a valuation measure that assumes a plan windup has occurred is unrealistic and inappropriate for a plan with joint governance, where both employers and members have a stake in responsible funding and the promotion of stability and equity. With joint governance, all interested parties participate in funding decisions and are in the best position to assess risks. The risk of windup is remote, and the security of the benefit is well protected.

We are very satisfied that the hard advocacy work done by the Plan, along with its sponsors and other representatives, has paid off. This successful effort will give us the flexibility to better manage the Plan, working towards our goals to eliminate unnecessary volatility in contribution rates and manage intergenerational equity so that all members are treated fairly. Ultimately, this will mean more predictable contribution rates, investment strategies that better match our liabilities, and a Funding Policy that takes a reasoned, realistic approach to maintaining stability.

Legislation is expected to be introduced before the end of the year. The related regulations will not be in place by January 1, 2011 – the effective date of the next actuarial valuation we are required to file. However, we are optimistic that we will be able to set our contribution rates for 2012 without the negative impact of the current solvency rules. Instead, our future contribution rates will be based solely on the going concern valuation, which assumes the Plan will continue until all currently earned benefits are paid out. This allows us to focus primarily on funding strategies that correctly assume the Plan’s long-term time lines.