Ontario outlines plan to toughen pension rules

* Pension reforms call for stricter funding rules

* More cash required for pension guarantee fund

By Claire Sibonney

TORONTO, Aug 24 (BestGrowthStock) – Ontario will toughen pension
funding requirements for companies and bolster its guarantee
fund as it works to fix a pension system hit hard by the
financial crisis, the Canadian province said on Tuesday.

The changes, included in legislation to be introduced this
fall, come after the provincial government spent hundreds of
millions to backstop the pension plans of firms like Nortel
Networks Corp (NRTLQ.PK: ) and General Motors Co [GM.UL].

“These rules will help reduce, hopefully eliminate, the
kind of moral hazard I would associate with companies and
employee groups agreeing to benefits without properly funding
them,” Ontario Finance Minister Dwight Duncan told reporters.

Canada’s most populous province, home to much of its
industrial base, plans to tighten the rules for valuing pension
assets and liabilities, making it more difficult for companies
to avoid making contributions when plans become underfunded.

Companies would also be prohibited from taking
“contribution holidays” unless plans were funded to a certain
threshold. And they would have to act more quickly to fund
plans if benefits are improved.

The government will also shore up the province’s Pension
Benefits Guarantee Fund, an insurance net for pensioners of
failed companies, by hiking fees for plan members. It estimated
that if the reforms had been implemented last year, this would
have raised C$30 million ($28.3 million) for the fund.

A ministry statement said the fund does not have enough
cash to cover new claims anticipated by the government in 2010.
The baby-boom generation heading into retirement is also
expected to put a strain on its resources.

“For over 20 years, governments have neglected addressing
these challenges because these challenges are real and
difficult and require … a fine balance,” Duncan said.

The province earlier this year put C$500 million into the
fund to help pay Nortel pensioners, among others.
($1=$1.06 Canadian)
(Reporting by Claire Sibonney; Editing by Jeffrey Hodgson)

Ontario outlines plan to toughen pension rules