Canada needs to look to target benefit plans if we are to achieve adequate retirement savings, says the Association of Canadian Pension Management (ACPM) in its new Target Benefit Plan Paper.
“Too many Canadians do not have adequate access to efficient and effective plans to help them prepare for their retirement, and it is up to governments and stakeholders to confront this issue directly,” said Chris Brown, president of the ACPM. “In our view, the private sector must step up and play its part.”
According to the paper, the target benefit design could help to manage the market and interest rate volatility behind recent workplace pension plan developments. As well, target benefit plans could help to rekindle employer interest in DB models, and help to achieve public policy objectives of government and benefit capital markets.
Across Canada, several provinces are adopting legislation that opens the door for target benefit plans. Last week, British Columbia’s Bill 38, the Pension Benefits Standards Act, received Royal Assent; a key element of the bill is the inclusion of target benefit plans. Prince Edward Island recently initiated Bill 41, the Pension Benefits Act, which also allows for such plans. And New Brunswick recently introduced Bill 63, which contains the concept of a “shared risk plan.” Similar legislation is expected in other provinces in the near future.
“Target Benefit Plans are intended to add to, not replace, existing single employer DB plans, as well as traditional DC plans or new plan types like the pooled registered pension plan,” explained Brown. “In a target benefit plan, contributions and benefits are fixed according to a pre-determined formula (as in DB plans). Employers are not required to make additional contributions, and benefits are adjustable up or down should future conditions impact the amount of funding in the plan.”