Federal target-benefit bill denounced as ‘unconscionable betrayal’

Canada’s labour movement is organizing against a federal bill that would allow federally regulated employers to establish target-benefit pension plans and convert existing defined benefit pensions to the new approach.

“By permitting the conversion of past-service DB pension benefits to TB plans, Bill C-27 invites employers and other plan sponsors to abandon their pension promises to employees and retirees, downloading virtually all plan risks brought on by market volatility from employers to workers and retirees,” Hassan Yussuff, president of the Canadian Labour Congress, wrote in a letter to Finance Minister Bill Morneau in response to the legislation introduced in October.

“This is an unconscionable betrayal of the legal rights and protections of plan members.”

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

But Jana Steele, a partner at Osler Hoskin & Harcourt LLP who has worked on target-benefit plans in New Brunswick, says the new option is better than the current trend towards converting defined benefit plans to defined contribution ones.

“Quite frankly, I was shocked by [the Canadian Labour Congress’s] position on this bill because in my view, employers are already leaving defined benefit plans and their only other option right now is defined contribution . . .,” says Steele.

“This would give another option, in the case of unions, to be bargained if an employer is looking to exit DB. . . . A target-benefit plan is arguably preferable from an employee’s perspective than a DC plan.”

Target-benefit plans, she says, include many of the features of defined benefit arrangements. As with defined benefit plans, target-benefit plan members can take advantage of pooling longevity and investment risk, don’t have to select their own investments and have a rough idea of their retirement income. As with defined contribution plans, employers benefit from fixed contributions.

Read: New Brunswick’s shared risk conversion faces a flurry of legal attacks

In his letter, Yussuff noted New Brunswick has seen several lawsuits since it began allowing target-benefit plans.

Steele, however, points out the litigation in New Brunswick is only in relation to one pension plan and not the legislation as a whole.

“By and large, these plans are doing quite well,” she says. “From what I’ve seen, they’re continuing to provide indexation, there haven’t been benefit reductions that I’m aware of and they’re being run by competent boards of trustees that understand their fiduciary roles vis-a-vis the plan beneficiaries.”

Overall, Steele supports the federal legislation. “I think target-benefit plans should be available as a design option. It does give employers another tool in the pension toolbox to select from,” she says.

Read: Which is better: DB, DC or a third way?