Despite British Columbia’s introduction of provisions for target-benefit pension plans in 2015, a report from the province’s regulator suggests the option has seen a slow uptake.

Only 30 pension plans with target-benefit components were registered as of Dec. 31, 2016, according to a report released by the Financial Institutions Commission of British Columbia on Wednesday.

Many of them were likely existing multi-employer pension plans, although the regulator did cite one defined contribution plan that switched to a target-benefit arrangement, notes Robert Brown, professor emeritus of statistical and actuarial science at the University of Waterloo.

Read: Pension solvency funding a growing challenge as B.C. deficits mount

There seems to be “some sense of discomfort” around target-benefit plans, says Brown. “I think part of that is the level of regulation, although given that they’re risk shared, the level of regulation is probably appropriate.”

Specifically, some plan sponsors could be leery of adopting target-benefit plans because they have to set up a provision for adverse deviation, he says. “I guess for some people, that’s painful. It means some money, although it’s money that isn’t lost the way some over contributions can be seen to be lost if they’re never taken up in terms of being needed to pay benefits.”

According to the report, 21 out of the 30 target-benefit plans have filed actuarial valuations.

Read: How to manage the long-term obligations of a DB pension promise

And while the province’s pension legislation doesn’t require target-benefit plans to fund themselves on a solvency basis, more than half of the 21 plans reported solvency deficiencies and four reported going-concern shortfalls. Cumulatively, the plans have a going-concern funding excess of $363 million and a median funded ratio of 120 per cent as of Dec. 31, 2016.

The report noted that 41 plans, the majority of which are defined contribution arrangements, have wound up since the province introduced new pension legislation in 2015. Registered retirement savings plans replaced a number of them, and plan sponsors cited increased administrative burdens as the reason for terminating their plans, according to the report.

On the other hand, the regulator received 24 new applications for registered plans, although they all followed a defined contribution model except for three that were defined benefit pensions.

Read: Are New Brunswick’s shared-risk plans on target?

According to the report, plans with a benefit formula provision, which include target-benefit and defined benefit arrangement, had an aggregate solvency position of 93 per cent as of Dec. 31, 2016. The figure was the same as of Dec. 31, 2015.

While the solvency position remained the same, the estimated total deficit for the plans increased to $2.64 billion as of Dec. 31, 2016, from $2.52 billion as of Dec. 31, 2015. As a result, plans with solvency deficiencies will likely have to increase their payments during the amortization period, the report noted.

Read: Ontario sets out plans for target-benefit multi-employer pensions

Only 64 of the 191 benefit formula pension plans have a solvency ratio of 100 per cent or higher, according to the report. In comparison, 170 of them have a going-concern funding ratio of 100 per cent or higher.

According to the report, 35 plans have applied for exemptions from making solvency deficiency payments since 2010. It noted most plans with solvency exemptions have converted to target-benefit arrangements since Sept. 30, 2015.

Many plans are still unlikely to switch to a target-benefit model, says Brown. “I think they’re a good idea but they have some serious drawbacks. And if you don’t have any risk at the moment if you’re a plan participant in a fully guaranteed defined benefit plan, I can see why you don’t want to take this step. But I think there’s a lot of workplaces that could avoid a switch to defined contribution by accepting target-benefit and shared-risk plan.”

Copyright © 2017 Transcontinental Media G.P. Originally published on benefitscanada.com

Add a comment

Have your say on this topic! Comments that are thought to be disrespectful or offensive may be removed by our Benefits Canada admins. Thanks!

* These fields are required.
Field required
Field required
Field required