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Ontario Pension Policy 2013: Key Challenges Ahead

Author

Listed:
  • Barry Gros

    (AON Hewitt)

Abstract

Since the report of an expert commission five years ago, Ontario pension standards have been updated multiple times in response – but there is still room for significant improvements. Further action is needed in three key areas: • 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 funding and surplus utilization models for 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. 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, 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. 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. The Arthurs Report’s objectives were to ensure affordable pension plans that are sustainable and operate within a clear set of unbiased rules. These goals are still within reach, provided the Ontario government implements new reforms.

Suggested Citation

  • Barry Gros, 2013. "Ontario Pension Policy 2013: Key Challenges Ahead," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 386, August.
  • Handle: RePEc:cdh:commen:386
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    File URL: https://www.cdhowe.org/public-policy-research/ontario-pension-policy-2013-key-challenges-ahead
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    References listed on IDEAS

    as
    1. James Pierlot & Alexandre Laurin, 2012. "Pooled Registered Pension Plans: Pension Saviour - or a New Tax on the Poor?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 359, August.
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    Cited by:

    1. William Robson & Alex Laurin, 2014. "Ottawa’s Hidden Deficit: The Widening Gap between Federal Government Pension Liabilities and Assets," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 406, April.
    2. William B.P. Robson & Alexandre Laurin, 2015. "Ottawa's Secret Debt: The Burden and Risks of Federal Employee Pensions," e-briefs 208, C.D. Howe Institute.
    3. William B.P. Robson & Alexandre Laurin, 2018. "Retiring Employees, Unretired Debt: The Surprising Hidden Cost of Federal Employee Pensions," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 514, May.

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    More about this item

    Keywords

    International and Trade Policy;

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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