The recent Supreme Court of Canada decision regarding the distribution of actuarial surplus in the event of a partial pension plan wind up (the Monsanto case) threatens to further destabilize Canada’s private-sector defined benefit (DB) pension system.

The comprehensive Watson Wyatt Discussion Paper on the subject provides food for thought for plan sponsors, regulators and everyone with a stake in the pension system. It places the Monsanto case in context by providing an exhaustive background of the case and by discussing other recent cases that have complicated the DB pension plan landscape. Further, it explains why and how this decision could have such far-reaching effects not only on future wind ups, but on past events and even on plans registered outside Ontario. It also defines the types of plans that should remain unaffected.

The Discussion Paper proceeds to explore actions that plan sponsors can take in the current regulatory environment to mitigate some of the impact of the SCC’s decision. These include measures relating to funding policy, investment policy and plan design. Finally, the Paper suggests numerous comprehensive regulatory solutions that would ease some of the pressure in the system in the future, and hopefully prevent further erosion of the level of private sector DB pension coverage in Canada.