Canadian pension plan sponsors are increasingly focused on finding new ways to mitigate the employer risk inherent in DB plans, while also being mindful that many Canadians are not comfortable assuming the level of risk and responsibility that DC plans call for. Target benefit plans (TBPs) fix contributions and retirement benefits according to a predetermined formula but allow benefits to be adjusted up or down as future conditions affect plan funding. These plan types are emerging as a potential fix to this challenge.
At an Association of Canadian Pension Management session last week (Target Benefits: Has Their Time Come?), Benoit Benoit Brière, director of pensions and benefits at Resolute Forest Products, spoke about how his company ventured into a TBP following its restructuring in 2010. The Montreal-based company—known as AbitibiBowater Inc. prior to emerging from creditor protection in Canada and the U.S.—needed a new economically sustainable pension solution to replace the DB plan offered to its heavily unionized employee base. With DC not something the unions were prepared to consider, the parties sat down and negotiated a plan to proceed with a TBP as a solution for new employees.
“The TBP was born at Resolute because it met the objectives of both parties. For employees, it ensured adequate DB pensions for current and new members, and for Resolute, the contribution becomes fixed and stable,” said Brière.
He explained that while the company and unions have a memorandum of understanding in place around TBPs, legislative changes are still required in both Quebec and Ontario before the plans can be implemented. Provinces across Canada—including B.C., New Brunswick and P.E.I.—have slowly begun enacting legislation needed for TBPs to be viable in their jurisdictions.
Paul Lai Fatt, a principal with Morneau Shepell, and Jana Steele, head of the pensions, benefits and compensation group with Goodmans LLP, spoke about New Brunswick’s shared risk plans (SRPs), a form of TBP that was introduced in the province earlier this year following legislative updates.
Lai Fatt said that while the idea for SRPs emerged from a provincial task force on pensions, the actual design was a product of collaboration between government, employers and unions to create something all parties could live with. That notion of give-and-take between employer and employees is a key reason why TBPs are a viable solution.
“It became an easier sell, because it was collaborative,” he said. “I realized it was definitely a compromise at the point where neither side really liked it, which really means that each side is giving up something.”