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Target-benefit plans are being hampered by a disconnect between how they’re regulated and how they’re managed, according to a new report for the C.D. Howe Institute.

In the report, Barry Gros, a retired actuary and chair of the pension board at the University of British Columbia’s staff pension plan, reviewed how target-benefit plans are managed, how they’re regulated and how defined benefit-based views within the policy-making community have inappropriately influenced target-benefit plan policy.

He detailed how effective and efficient management is key to these plans’ success and where regulating the new pension plan option went wrong. Beginning in the 1980s, he outlined, many — if not most — private sector pension plans moved away from the single-employer defined benefit model due largely to changes to the federal Income Tax Act, increased burden of solvency funding resulting from declining interest rates, and changes to pension accounting rules.

Read: DB regulations a bad fit for target-benefit plans, MEPPs: report

A a result of these shifts, provincial governments conducted comprehensive pension system reviews to identify opportunities for reform, bringing in new pension legislation to provide more flexible pension models and replace the outgoing DB plans, including the introduction of target-benefit plans. These plans have fixed contributions, set by terms or negotiations, and a targeted pre-defined benefit formula dependent on financial performance.

Although target-benefit plans were introduced with a great deal of promise, according to Gros, regulatory hurdles continue to stifle their ability to achieve maximum efficiency. He noted that target-benefit plans’ regulatory standards were set with traditional DB templates in mind, but they require a different regulatory approach if they are to thrive.

“Somehow, in this transition not enough time was taken to ask hard questions about how target-benefit plans actually work, about their inherent risk characteristics and how they should be regulated differently from traditional DB plans,” he said, in a press release.

Read: A look at one of Canada’s oldest multi-employer target-benefit plans

In the report, Gros set out four main recommendations to make sure target-benefit plans continue to be a viable pension option. These include: changing the conversation by focusing on the benefits the contributions can support; readjusting emphasis on who pension legislation is meant to protect; focusing legislated standards less on financial measures and more on effective plan management, governance and communication; and developing policy inspired by an understanding of industry’s best practices rather than traditional DB pension plan rules.

“Can we fix this? Of course we can,” said Gros. “But to do so we need to change how we talk about [target-benefit plans]. We need to change the conversation.”