You bet. I'm happy to start, and then I may have some supplemental information from my colleague, Mr. Morrison.
Essentially, the issue we're talking about with respect to unfunded pension liabilities relates to corporations that have defined benefit pension plans. Just by way of quick reference, there are a number of ways in which companies provide additional retirement benefits to their employees, or future promises of income in retirement. Sometimes they're as simple as supporting individual employees in making their own contributions through things like RRSPs or other savings plans—a defined contribution mechanism.
What a defined contribution mechanism means is that in a pension plan that essentially says that the employee, perhaps, but often the employer, will make a contribution into a pension plan, the contribution is what is defined; that is, the employer will make a set contribution on every pay, which will then go into a fund. That fund will be invested with some sort of investment scheme, and whatever that investment scheme is able to ultimately provide is what will be made available to the individual at the time of their retirement.
A defined benefit pension plan, however, is one where the benefit is that which is defined, which is to say that a promise is made that upon retirement an employee will receive a percentage, usually, of their pre-retirement income, often with some sort of formula based on best years, which indicates that it will be paid in perpetuity until such time as their death.
What we're talking about is companies that offer this type of pension plan. That number has largely been going down. I don't have the exact figures in front of me, but when I'm done explaining I'll see if Mr. Morrison has information. Essentially, that number is relatively small, because it is a higher-risk mechanism of providing retirement income. Ultimately, the employer is hoping that investment returns will allow them to be able to continue to offer that benefit based on the full lifespan of their employee base.
Where we have an unfunded pension liability is essentially the differential between that which was promised and that which is required. That, we calculate in two ways. One is on a going-concern basis. In a defined benefit that means, are you actually earning enough from your investment returns and your ongoing cash requirements to be able to provide for the requirements of your pensioners at the time of their retirement? Right now, if I have 10 employees and I have five retirees, am I actually earning enough on the basis of what I have in my pension fund to be able to provide that?
Then there's also a wind-up basis, essentially. Is there enough, should the company actually go insolvent, to be able to meet the promises it made to all of its employees? That wind-up basis is a much bigger number, obviously, because you need to have enough in your account that if you were to go insolvent you would be able to pay out those promises.
The vast majority of defined benefit pension plans that are currently available in Canada are actually provincially regulated, because they are provincially regulated industries. The requirements for plan sponsors as to the amount they need to have in place vary enormously, everything from the Quebec government, which actually does not require a solvency basis accounting—so they do not require pension plans to account for what would be required if they went to insolvency—all the way through to the federal government, where we actually require plans to be 100% funded on a wind-up basis or on a solvency basis—