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A report by the Canadian Centre for Policy Alternatives recommends that payments to shareholders, such as dividends and share buybacks by companies, should be limited if their pension plans are underfunded.

The report says pension regulations must expand to consider broader financial decisions within companies.

Read: Pension system strength is ‘Canada’s best-kept secret’: CPPIB head

It says that in many instances, firms are complying with the minimum required payments under the rules, but they are not making up the shortfalls in the pension plans as fast as they could.

Companies with defined-benefit pension plans have been hurt by the financial crisis and low interest rates, which have increased the amount of money they are required to have in their pension plans to pay future benefits.

Read: RRSP, pension limits are outdated, report says

When a pension plan is not fully funded, members face the possibility of seeing their pensions reduced if the plan is forced to wind up.

The report notes that the pension plan at Sears Canada has a $267-million shortfall. But the retailer, which is in the process of liquidating, has paid $1.5 billion in shareholders in dividends and share buybacks since 2010.

Originally published on Advisor.ca
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Doug McCaw

Pension plans require and Actuarial Valuation Report every 3 years. Any deficit should be paid over the following 3 years before dividends are paid. Any surplus should be held for a rainy day to support future contributions.

Wednesday, Nov 22, 2017 at 8:52 am Reply