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Joe Hornyak
Former editor of Benefits and Pensions Monitor and founder of Joe Hornyak Communications
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DB Plans Get Greater Flexibility
The government of New Brunswick will provide defined benefit plan sponsors with greater flexibility in funding solvency deficits, says an Eckler ‘Special Notice.’ Amendments?to the Pension Benefits Act?will allow plans to fund solvency deficits to a threshold of 85 per cent of solvency liabilities rather than 100 per cent. It also introduces a new ‘going-concern plus’ funding model, including a provision for adverse deviation (PfAD). Plans will be required to submit an additional actuarial valuation report within 12 months of filing an actuarial report indicating a solvency ratio of less than 85 per cent. It also changes the application of a going concern excess to reduce contributions if the reduction in contributions would not result in a solvency ratio or going concern ratio less than 105 per cent. As well, it introduces new rules regarding the use of letters of credit. The amendments set out new requirements for the establishment and adoption of a governance policy for pension plans. The new regulation does not impact pension plans that have a previous exemption from funding solvency deficiencies, including municipalities, universities, and nursing homes. This continues a trend in pension reform seen in other Canadian jurisdictions, including Nova Scotia, Ontario, Quebec, and British Columbia. It closely follows several of the key amendments in other provinces, with the methodology for calculating the PfAD mirroring that of Nova Scotia. The easing of restrictions on solvency funding will be welcome for DB plan sponsors dealing with issues related to the ongoing COVID-19 pandemic, but will require plans to review assumptions with an actuary to ensure the funding changes can be properly implemented. Changes to the requirements related to plan governance will require a close look at current governance practices for all topics covered.
Inflation To Stay In Control
After a decade of inflation below two per cent, Mackenzie Investments’ ‘2022 Outlook’ predicts it will climb to a higher level, but will not spiral out of control. This is a significant factor for all asset classes as inflation has the power to impact the outlook for each, depending on the source, nature, and the growth environment surrounding the shift in inflation. The report notes that, in the current environment, both demand and supply forces are at play, and the data continues to be heavily distorted by the pandemic. This puts global central banks in a difficult position going into 2022 as inflation persists.?Over-or under-reacting could risk derailing an already fragile recovery period. Typically, central bankers would increase interest rates in response to higher inflation, but its analysts understand that there are special considerations in the current environment ? raising interest rates too soon or too aggressively could lead to a recession and, with the world economy saddled with massive debt, any increase in interest rates would likely drive up the borrowing costs on this debt. The firm's investment professionals anticipate a series of ‘aftershocks’ following the sustained shake-up of most global economic systems as much of the world recovers and resets from the worst of the COVID-19 pandemic. The critical factor that will define 2022 and beyond is anticipated to be how capital markets respond to the reverberating shocks.
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