New Brunswick could be paving the way for pension reform. The province’s new pension legislation, introduced in May of this year, became law earlier this week.
Bill 63 amends the Pension Benefits Act and introduces a new type of retirement savings option, called a shared-risk pension plan (SRPP). The approach combines elements of both DB and DC plans, with the risks being shared between the plan sponsor and the plan member. The new model came out of research by a task force that had been appointed to examine the long-term stability and security of pensions in N.B.
With an SRPP, a basic benefit is promised, but it may be increased or decreased depending on fund performance. If the fund performs well, contributions may decrease and disbursements may increase, by way of cost-of-living increases or other benefits.
If the plan performs poorly, contribution levels could be increased and benefits could be reduced or suspended; however, research by the task force found that there is only a 2.5% probability that base benefits may have to be reduced under the model.
The new pension model is based on a well-established Dutch model. Both jurisdictions face similar economic and demographic challenges, including an aging population, growing life expectancy and market returns that are not keeping pace with payouts and indexing.
“A number of pension plans in New Brunswick and across North America are facing significant funding deficit issues,” said Premier David Alward in a statement. “This ‘made in New Brunswick’ model, developed in collaboration with union leadership, offers an innovative way to address those issues before it is too late. This model achieves our goal of making pensions in New Brunswick more secure, sustainable and affordable.”
“In creating this new option for pension plans, New Brunswick is positioning itself as a leader in North America on this issue,” said N.B. Attorney General Marie-Claude Blais.