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Ottawa targets pension reform ahead of key talks

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The Canadian government proposed changes on Tuesday to rules governing federally supervised private pension plans to make them less sensitive to financial market volatility.

Finance Minister Jim Flaherty said the regulatory amendments would provide more tools to sponsors of federally regulated private pension plans to "better manage their funding obligations while providing additional protection to plan members and retirees."

The announcement comes just ahead of a meeting next Monday between Flaherty and provincial finance ministers to try to lay out a plan for broader pension reform in the country.

The changes proposed on Tuesday would only affect about 7 percent of all private pension plans in Canada, as most are regulated by provincial authorities.

The suggested amendments are:

* allow plan sponsors to secure letters of credit in lieu of making solvency payments to pension funds, up to a limit of 15 percent of plan assets.

* require the plan sponsor to fully fund pension benefits on plan termination

* void any amendments to a plan that would reduce the solvency ration of the pension plan if the plan's solvency ration would be below a ratio set out in regulations

* permit plan sponsors, members and retirees of a distressed pension plan to negotiate their own funding arrangements to facilitate a plan restructuring.

Ottawa first proposed in October 2009 a series of measures to reform private pension plan regulations, and has since introduced some legislative and regulatory changes.

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In addition to pension funding issues, provincial and federal finance ministers meeting in the Rocky Mountain resort of Kananaskis, Alberta, next week will discuss possible increased contributions to the public pension system, the Canada Pension Plan.

They also hope to make progress on a proposal to introduce multi-employer private pension plans, which would enable more small businesses to offer plans and allow freelance workers to gain access to them.

No big breakthroughs are expected at the meeting.

A series of studies have warned that a growing number of people won't have enough savings to retire unless the system is changed, sparking a series of proposals from political parties, business and labor groups for boosting savings.

At the last provincial-federal meeting in June, Ottawa and most of the 10 provinces agreed to consider a modest increase to Canada Pension Plan contributions.

To push through any such changes to the CPP, the Conservative government needs the approval of Parliament as well as backing from two-thirds of the provinces.

Some businesses, as well as the powerful Western province of Alberta, have opposed the idea. The Canadian Federation of Independent Business argued that increased CPP contributions would amount to a payroll tax and kill thousands of jobs.

"Instead of increasing yet another payroll tax, governments need to consider how they can ensure Canadians have jobs and the financial resources to save for their own retirement in the first place," the CFIB said in a statement.

Currently, employees and employers pay a combined 9.9 percent of a worker's pay into the CPP and the Quebec Pension Plan on income of between $3,500 and just over $47,000. The fund pays out pensions to retirees, starting at age 60, as well as disability and survivor benefits.

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