Monsanto will weaken pensions: Watson Wyatt

(November 9, 2004) The Supreme Court of Canada’s ruling regarding the Monsanto case and the distribution of surpluses in the event of a partial wind-up will weaken Canada’s defined benefit (DB) pension system, according to a paper released by Watson Wyatt. The Toronto-based consulting firm suggests the decision will cause many plan sponsors to make […]

By Joel Kranc | November 9, 2004 | Last updated on November 9, 2004
2 min read
  • Plan sponsors should prepare a written document outlining the pension plan’s funding policy.
  • Plan sponsors may choose investment policies that reduce the likelihood of surplus build up such as a greater emphasis on bonds rather than equities.
  • Plan design strategy will be an important issue that will allow plan sponsors to minimize the possibility of surpluses. Watson suggests the use of career-average-earnings benefit formulas or “shared-cost” plans.
  • Sharing risk and rewards with plan members can allow for a more equal allocation of funding risks and rewards between the sponsor and its members.

Finally, the paper reiterates the need for changes in the regulatory environment. David Burke, national retirement practice director with Watson says, “Legislative changes must be made to address the present asymmetry, particularly in regard to the distribution of surplus on partial wind-up. If changes are not made, employers will respond by reducing pension coverage, converting their plans to designs that involve less risk for themselves and less benefit for employees, or eliminating pension coverage entirely.”

Filed by Joel Kranc, associate editor of Benefits Canada, joel.kranc@bencaqn-cir.rogers.com

(11/09/04)

Joel Kranc

(November 9, 2004) The Supreme Court of Canada’s ruling regarding the Monsanto case and the distribution of surpluses in the event of a partial wind-up will weaken Canada’s defined benefit (DB) pension system, according to a paper released by Watson Wyatt.

The Toronto-based consulting firm suggests the decision will cause many plan sponsors to make changes to the design of their pension plans, as well as to funding and investment policies. The paper, entitled “Canadian Pension Plans after the Monsanto Decision: a Discussion Paper,” also says the decision could lead to the further reduction of private-sector pension coverage in Canada.

“Employers will be forced to consider new approaches to the design, funding and investment of pension plans moving forward. And it will be equally important for government to take decisive action to address the problems of a regulatory environment that can only be described as hostile to sponsors of DB plans,” says Ian Markham, director of pension innovation with Watson Wyatt.

The paper goes on to suggest some steps plan sponsors can take to lessen the burden of the Monsanto decision:

  • Plan sponsors should prepare a written document outlining the pension plan’s funding policy.
  • Plan sponsors may choose investment policies that reduce the likelihood of surplus build up such as a greater emphasis on bonds rather than equities.
  • Plan design strategy will be an important issue that will allow plan sponsors to minimize the possibility of surpluses. Watson suggests the use of career-average-earnings benefit formulas or “shared-cost” plans.
  • Sharing risk and rewards with plan members can allow for a more equal allocation of funding risks and rewards between the sponsor and its members.

Finally, the paper reiterates the need for changes in the regulatory environment. David Burke, national retirement practice director with Watson says, “Legislative changes must be made to address the present asymmetry, particularly in regard to the distribution of surplus on partial wind-up. If changes are not made, employers will respond by reducing pension coverage, converting their plans to designs that involve less risk for themselves and less benefit for employees, or eliminating pension coverage entirely.”

Filed by Joel Kranc, associate editor of Benefits Canada, joel.kranc@bencaqn-cir.rogers.com

(11/09/04)

(November 9, 2004) The Supreme Court of Canada’s ruling regarding the Monsanto case and the distribution of surpluses in the event of a partial wind-up will weaken Canada’s defined benefit (DB) pension system, according to a paper released by Watson Wyatt.

The Toronto-based consulting firm suggests the decision will cause many plan sponsors to make changes to the design of their pension plans, as well as to funding and investment policies. The paper, entitled “Canadian Pension Plans after the Monsanto Decision: a Discussion Paper,” also says the decision could lead to the further reduction of private-sector pension coverage in Canada.

“Employers will be forced to consider new approaches to the design, funding and investment of pension plans moving forward. And it will be equally important for government to take decisive action to address the problems of a regulatory environment that can only be described as hostile to sponsors of DB plans,” says Ian Markham, director of pension innovation with Watson Wyatt.

The paper goes on to suggest some steps plan sponsors can take to lessen the burden of the Monsanto decision:

  • Plan sponsors should prepare a written document outlining the pension plan’s funding policy.
  • Plan sponsors may choose investment policies that reduce the likelihood of surplus build up such as a greater emphasis on bonds rather than equities.
  • Plan design strategy will be an important issue that will allow plan sponsors to minimize the possibility of surpluses. Watson suggests the use of career-average-earnings benefit formulas or “shared-cost” plans.
  • Sharing risk and rewards with plan members can allow for a more equal allocation of funding risks and rewards between the sponsor and its members.

Finally, the paper reiterates the need for changes in the regulatory environment. David Burke, national retirement practice director with Watson says, “Legislative changes must be made to address the present asymmetry, particularly in regard to the distribution of surplus on partial wind-up. If changes are not made, employers will respond by reducing pension coverage, converting their plans to designs that involve less risk for themselves and less benefit for employees, or eliminating pension coverage entirely.”

Filed by Joel Kranc, associate editor of Benefits Canada, joel.kranc@bencaqn-cir.rogers.com

(11/09/04)