1. Comments from OSFI

Regulators have also responded to the recent downturn in capital markets. In December, the Superintendent of Financial Institutions (Canada) published a letter concerning the market downturn and ongoing market volatility which reiterated comments raised in PBSA Update 29 wherein OSFI encouraged pension plan administrators to understand their risk tolerances and to undertake scenario testing in order to help identify potential exposures and take initiatives to manage risks prudently to safeguard pension benefits. The Superintendent notes that it is "essential that plan sponsors and administrators carefully consider the implications of the market downturn on their pension plans."

  1. Comments from Canadian Securities Regulators

At the same time, Canada's securities regulators are taking a closer look at the potential impact of pension liabilities on public issuers. On January 8, 2009 they published CSA Staff Notice 51-328 Continuous Disclosure Considerations Related to Current Economic Conditions. In the notice, securities regulators state that, if an issuer has a "material defined benefit pension plan", the management discussion and analysis ("MD&A") that is required to be filed with an issuer's financial statements and provided to investors should discuss such issues as the anticipated impact of the funded status on future contributions and pension expenses, risks associated with the pension plan (including any expected increase in future contributions). Plan sponsors that are public issuers should carefully consider these disclosure issues. We are aware of a number of situations where sponsors have been specifically requested by the Ontario Securities Commission to address the status of potential pension liabilities.

In the current economic environment, when it comes to pensions provided by public companies, sponsors must be prepared to address concerns of all stakeholders - plan beneficiaries, investors and regulators.

  1. Financial and Other Covenants

Employers who sponsor defined benefit plans need to consider whether recent economic conditions have any implications for them in the context of commercial covenants related to such plans that they may have given to lenders or others.