Policy Reflection

Should the sponsor default, the FI that issued the SBLC will provide cash to the pension plan and charge that obligation to the sponsor-client. [...] Advantages to the Plan Sponsor Issuing an SBLC generally costs less than borrowing the funds to make a plan contribution, thereby allowing the business to direct funds to more productive purposes.19 This can serve to strengthen cash flows and place companies in a better position to provide future cash contributions to the pension plan, assuming the interim investments had the desired result of gro [...] In practice, the plan sponsor, with the consent of the pension fund trustees, would likely request the issuing institution reissue the SBLC in a lower amount. [...] Disadvantages to the Plan Sponsor The obvious cost to the plan sponsor is the fee the bank charges for issuing the SBLC. [...] These reasons mirror some of the concerns summarized in Ontario’s 2008 Report of the Expert Commission on Pensions,22 including objections that SBLCs “will not generate investment growth for the pension fund” and that “they would be unnecessary if surplus rules were tightened up.” Other concerns expressed during that policy review included that the “existence of a letter of credit in favour of the