This is my third blog post in a series on target benefit plans. In the first post, I discussed the basics of target benefit plans (TBP), also referred to as defined ambition plans.
In the second post, I discussed New Brunswick’s shared risk model, a type of TBP. As discussed in that post, New Brunswick is the first jurisdiction in Canada to implement a comprehensive TBP regime as a design option for single and multi-employer plans and union and non-union workforces. (Target benefits for multi-employer plans already exist in most jurisdictions.)
In this post, I will discuss the status of single employer TBPs across Canada – outside of New Brunswick.
In each of Alberta, British Columbia, Nova Scotia and Ontario, target benefit provisions have been introduced into the legislation. However, in each case the legislation is not yet in force and there are no regulations.
The legislation in Ontario and Nova Scotia will limit target benefits to workforces where there are collective agreements. It is unclear why this restriction has been made in the legislation, given that many collectively bargained workforces already have access to multi-employer target benefits. One issue that is frequently raised in this context is governance. This is because multi-employer target benefit plans are generally governed by a board of trustees that includes employee representation. While this may be a hurdle to achieve in the single employer non-union context, there are certainly options that could be considered. For example, boards of trustees could be required to have one or two independent trustees.
Another option would be to adopt New Brunswick’s approach. In New Brunswick, shared risk plans can be administered by a trustee, board of trustees or not for profit corporation. There is no requirement in the legislation for how boards of trustees must be constituted. The New Brunswick legislation does provide that trustees are to act independently of the party that appointed them and that the sole obligation and fiduciary duty of a trustee is to carry out the purposes of the shared risk plan.
Quebec introduced target benefit rules that only apply to a limited sector – pulp and paper. Final regulations were published in Quebec on November 6, 2013. The Quebec rules are retroactive to December 31, 2010 to accommodate certain TBPs that were established effective January 1, 2011.
In Saskatchewan, the regulator takes the position that no amendments are required to the applicable pension standards legislation to accommodate target benefit plans. The existing legislation allows a plan sponsor to limit the contribution levels to the amount negotiated under a collective agreement. If funds are insufficient to enable the benefits, benefits can be reduced if approved by the regulator.
Manitoba and Newfoundland and Labrador have not proposed legislation to date that would accommodate single employer target benefit plans. There is no single employer target benefit legislation for federally registered plans. P.E.I. does not currently have pension standards legislation in force.
It also worth noting that changes to the Income Tax Act (Canada) should be made to accommodate the unique nature of target benefit plans. The ITA is designed to accommodate defined benefit (DB) and defined contribution (DC) plans and specified multi-employer plans. TBPs are different than DB and DC plans, although they contain features of both. For example, consideration should be given to the pension adjustment structure in the ITA and how it will apply to TBPs.
The pension system is a voluntary one. Employers should be provided with choices if they wish to provide a pension to their employees. For some employers DB may be the right choice and for others it may be DC. However, there is a big spectrum between DB and DC and legislative changes need to be made to facilitate other options along that spectrum. Policy makers should be encouraged to adopt legislation to facilitate single employer TBPs and other innovative plan design options.