The BC Government and Service Employees' Union (BCGEU) is calling on the BC government to scrap outdated rules that compromise private sector defined benefit pension plans by inaccurately measuring their value and creating unnecessary volatility. The union's call to action on this issue follows the release of "A Review of the Solvency Funding Framework under the Pension Benefits Standards Act: Report on Stakeholder Committee Process August 2019" by the Ministry of Finance earlier this month.
Defined benefit pension plans are the best guarantee of retirement security currently available to workers in Canada, but in B.C. they are subject to a type of valuation that can paradoxically weaken their value. This is the solvency valuation which calculates whether the plan has sufficient assets to cover its liabilities if the plan were to terminate. This requirement is currently 100 per cent – enough assets to pay all benefits owed to pensioners at a given time. Plans valued at less than 100 per cent are considered to have a "solvency deficiency."
"The current solvency funding requirements are unrealistic because they were not designed for our current investment environment of very low interest rates and bond yields," says BCGEU treasurer Paul Finch. "As a result, plan administrators are obliged to significantly scale up contributions in the short term, creating volatility and potential cost problems for employers and employees."
To strengthen and protect defined benefit pension plans and to guarantee their security, the solvency valuation requirement must be replaced with a going concern valuation. As opposed to the assumption of termination in the solvency valuation, the going concern valuation calculates continued contributions to the plan and accumulated assets. A well-formulated going concern valuation would more accurately capture the actual value and risks associated with defined benefit plans, while reducing unnecessary funding pressures that have been proven to jeopardize them.
In 2018 the administrative committee of the United Way Pension Plan advised its members that the most recent valuation indicated funding of 119 per cent on a going concern basis; however solvency funding was just 91 per cent so these members lost their defined benefit pensions due to this faulty valuation system. As a result, use of the solvency funding requirement has already been dropped in other provinces.
The BCGEU is also disappointed that the Canadian Association of Retired Persons (CARP) is advocating that the provincial government maintain required pension solvency funding at 100 per cent in response to the ministry's recommendation in their report to lower it to 85 per cent.
"CARP's position is based on an understanding of Ontario's regulatory framework for pensions, not B.C.'s, making their comments potentially harmful to the retirement security of B.C. workers and pensioners," says Finch. "To protect pensions, solvency funding must be replaced by the going concern valuation and plan costs should not be based on bond yields."
Read the BCGEU's detailed response to the report released by the Ministry of Finance here.
The BCGEU is one of the largest unions in B.C. with over 79,000 members in almost every community and economic sector in the province.
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