Canadian pension plan executives are starting 2018 expecting to invest more in alternative investments, specifically infrastructure and real estate, as the easing of funding rules in Ontario gives plans more opportunity to take on risk, sources said.
"This funding rule change is a game-changer," said Manuel Monteiro, partner and head of the financial strategy group at Mercer (Canada), Toronto. "It could change plan design, change investment strategies and should impact funding strategies."
The Ontario Legislature last year approved the law that will eliminate the requirement that defined benefit plans base their funding on the basis of both solvency, or immediate termination basis, and going concern, or ongoing operations. Instead, plans that are more than 85% funded will be allowed to calculate annual funding on a going-concern basis alone.
The Ontario Finance Ministry is expected to implement the new rules sometime this year, once a comment period on regulations closes at the end of January.
Ontario's move comes after Quebec in 2016 dropped the solvency funding requirement for all DB plans based in that province. Other provinces maintain both funding requirements, although some have smoothed contributions over longer time horizons. But Mr. Monteiro said he expects all other Canadian provinces to follow suit eventually. (Most pension plans in Canada are governed by provincial rules.)