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(April 15, 2008) We’ve heard it many times before: defined benefit pension plans are on the decline. But this is partially due to regulations that foster employers’ under-funding of the plans, according to a new report from C.D. Howe Institute.

The report, called Lifting the Lid on Pension Funding, notes what’s particularly harmful is the Income Tax Act’s prohibition of employer contributions to pension plans when assets exceed recorded liabilities by 10%.

Given the recent volatility in asset prices and interest rates, and the resulting volatility in DB plan balance sheets, the federal government should consider raising — or removing — the restriction, say Robin Banerjee and William Robson, authors of the report.

While they acknowledge the 10% limit is in place to prevent plan sponsors from reducing taxable profits, they believe the benefits are “marginal at best” since most businesses have — and use — other options to reduce tax, such as reinvesting earnings or paying them out as dividends.

The authors’ bottom line: Limiting contributions in good times stops plan sponsors saving in fat years to cushion against the leaner years.

To read the full e-brief, click here.

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ABCP bankruptcy protection extended

An Ontario Superior Court has extended bankruptcy protection for the $32 billion frozen in asset-backed commerical paper.

The extra time was necessary since affected investors won’t vote until April 25 on a plan to restructure the debt, and protection was set to expire tomorrow.

Judge Colin Campbell extended protection until May 30.

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Majority of Canadians prepared for tax season: Study

(April 15, 2008) A new study from TransUnion finds that more than three-quarters of Canadians do plan for the long term when it comes to financial matters, and the vast majority (90%) plan to file their taxes by month’s end.

“Canadians should give themselves a pat on the back,” said Tom Reid, director of consumer solutions at TransUnion. “Setting financial plans and goals is a critical step in building a stable financial future and can greatly assist consumers in meeting their ongoing credit obligations.”

When further asked about their finances, 46% of Canadians surveyed said they adhere to long-term planning, while one-third set short-term goals and stick to them. Fifteen per cent say they simply hope for the best and “get by” day to day. Only 3% said they “roll the dice” by gambling on high-risk investments.

Not surprisingly, those who said they were long-term planners tended to be older and have more significant family income.

(04/15/08)