February 07, 2013
Some of Ontario’s largest companies, facing massive deficits in their pension plans, are turning to their employees in a bid to help solve a deepening funding crisis.
Chrysler Canada Inc., ArcelorMittal Dofasco Inc. and other companies – large and small – have asked their employees to let them take advantage of a special Ontario government rule that allows companies to stretch contributions to underfunded defined-benefit pension funds to 10 years from five.
The requests to extend pension funding underline the seriousness of a decade-long pension crisis that has sent some Canadian firm into bankruptcy protection, caused cuts in benefits for tens of thousands of pensioners and could put governments at risk of having to bail out underfunded plans.
The current pension-funding deficits, which ran to more than $1-billion at some employers and almost $30-billion over all in 2011, have deepened since the 2008-2009 recession despite decent returns on assets as stock markets have recovered. The culprit is low interest rates – the very policy adopted by central banks to spur their economies and encourage companies to engage in capital spending and other job-creating investments. Low rates restrain pension returns and increase liabilities.
The Ontario rule, first put in place in 2009, was reinstated on Nov. 1, 2012, and the number of companies seeking the funding extension appears to be growing.
There is "absolutely" more interest in using the funding relief today than there was in 2009, said Mitch Frazer, a lawyer who advises companies on their pension plans.
"More plans have been underfunded for a significantly longer period of time," Mr. Frazer said. "Now people realize these shortfalls and these low interest rates might be here for a very long time and that’s changed the whole game."
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