Is the federal government on the right track when it comes to allowing target-benefit pension plans?
Last month, the government introduced legislation that would allow federally regulated employers to establish target-benefit pension plans.
The move provoked a swift backlash from Canada’s labour movement over concerns that target-benefit plans are inferior to defined benefit pensions and about a provision that allows for conversion of past-service benefits.
Read: Federal target benefit bill denounced as ‘unconscionable betrayal’
“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,” wrote Canadian Labour Congress president Hassan Yussuff in a letter to Finance Minister Bill Morneau.
Target-benefit plans have existed in Canada for several years, most prominently in New Brunswick. Alberta and British Columbia also have provisions allowing for them and now, after some fits and starts, the federal government is moving on the issue.
Target-benefit plans offer several advantages to employers, particularly when it comes to greater certainty about contribution rates. But Jana Steele, a partner at Osler Hoskin & Harcourt LLP, notes they also provide some of the features of defined-benefit arrangements, such as pooling longevity and investment risk. Members also don’t have to select their own investments and can still have a rough idea of their retirement income, according to Steele.
Read: Are New Brunswick’s shared-risk plans on target?
So given the wide gulf in opinions on defined benefit versus defined contribution pension plans, is the target-benefit approach a good compromise?
Read: New Brunswick’s shared-risk conversion faces a flurry of legal attacks
The issue is the topic of this week’s Benefits Canada online poll. What do you think about the federal government’s move to allow target-benefit pension plans? Do they encourage sustainable pension coverage or will they encourage employers to abandon their obligations as sponsors of defined benefit plans? Don’t forget to have your say.
As for last week’s poll, it looked at the federal government’s infrastructure bank aimed at drawing pension funds into infrastructure investments. The poll found 62.5 per cent of respondents agreed with the strategy and think there are many good infrastructure investment opportunities in Canada. Another 37.5 per cent disagreed, suggesting there are too many barriers to making Canadian infrastructure projects viable as an investment.
Read: 2016 CAP Member Survey: Deconstructing how different employees view their retirement
