The Canadian Association of Pension Supervisory Authorities (CAPSA) is a national association of pension regulators that works to facilitate effective pension regulation in Canada. One of CAPSA’s roles involves publishing various guidelines to support the development and improvement of pension industry best practices. On November 15, 2011, CAPSA released Guideline No. 7, Pension Plan Funding Policy Guideline (Funding Guideline). Although following CAPSA guidelines is not a requirement under any current pension legislation, pension regulators across Canada generally expect that registered pension plans will be administered in accordance with all these guidelines. At present, many defined benefit pension plan sponsors are failing to follow the Funding Guideline.
The Funding Guideline
The purpose of a funding policy is to establish a framework for funding a defined benefit pension plan, taking into account factors that are relevant to the plan and the sponsor. The Funding Guideline provides guidance on the development and adoption of funding policies and is premised on the principle that funding decisions should not be made on an ad hoc basis because of the significant impact such decisions have on plan sponsors and beneficiaries. The Funding Guideline expressly notes that funding requirements promote benefit security.
The Funding Guideline includes descriptions of the various elements that should be considered in establishing a funding policy. The Funding Guideline also outlines special considerations for multi-employer pension plans (MEPPs) because different funding considerations may apply to MEPPS.
What You Should Do
We strongly encourage all plan sponsors to examine their current funding regime and establish a written funding policy that complies with the Funding Guideline. Having a funding policy is a good practice and is an integral part of the plan’s structure. We note that CAPSA Guideline No. 6, Pension Plan Prudent Investment Practices Guideline, may also be helpful in developing an appropriate funding policy and that the plan’s Statement of Investment Policies and Procedures should be considered when determining the funding policy. Please contact us if you require any assistance developing and implementing a funding policy in accordance with the Funding Guideline, as well as ensuring overall compliance with other CAPSA guidelines.
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