How secure does pension plan funding need to be? In the wake of the financial crisis, this became an immediate concern for some plans.
The issue is a plan’s “solvency funding.” The requirement for solvency funding is supposed to help protect benefits if a plan is shut down or an employer goes bankrupt.
It’s a measure of whether a plan has the money needed to cover its obligations if it were shut down immediately. If a plan does not meet the solvency test, it often means extra employer funding is needed, usually within five years.
However, in the wake of the economic and financial collapse, many plans and employers looked to governments to provide some form of solvency “relief”. They were calling for measures allowing employers to pay less into pension funds just as the funds need more money.
They claimed that the additional payments were an unreasonable financial burden and argued that not all plans are subject to the same level of risk of windup or employer bankruptcy. (The risks of bankruptcy and wind-up are far greater in the private than public sector).
But it’s a tricky balance, as letting employers off the funding hook can put the benefits of current and future retirees at risk.
At a recent pension trustee training, CUPE pension researcher Neetish Rampersad summed up what governments are planning. Listen in with this podcast. You can follow along with his presentation handout.
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