A new Intelligence Memo from the C.D. Howe Institute, Ontario’s New Target Benefit Plan Framework: One Caveat, says finalized regulations concerning target benefit pension plans are welcome but one key area in the regulation “represents a misplaced application of principles more in line with how defined benefit (DB) pension plans work,” writes retired actuary, Barry Gros.
“Regulations concerning the minimum contribution test,” he continues, “introduce an overlay that could in fact work against what the required funding and benefits policy is meant to accomplish.”
The section in question, he says, introduces rules for minimum contributions that mimic those required for DB plans, “but which run counter to some of the best management practices for target benefit plans,” Gros writes. “This conflict illustrates a lack of appreciation as to how these plans operate.”
Investment focus differs
In addition to the contributions required, he also points out that the investment focus and investment horizons for target benefit plans differ from that of single employer DB plans. “The regulations presume that one set of tools is adequate for all types of pension plans where a retirement benefit is defined. I disagree,” he states. “The Ontario government, between now and January 1, should review the minimum contribution aspect of the regulations and demonstrate why it believes it is necessary in its current form. Its removal would cause no harm to plan members and would also provide model target benefit pension regulations for the rest of Canada.”
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