The C.D. Howe Institute is advocating for industry watchers and participants to better understand the alternatives to single employer defined benefit (DB) pension plans that are available. In a new report, the institute examines target-benefits plans (TBPs), their prominence in British Columbia in particular, and uses this experience to craft guidance for those engaged in policy and governance deliberations in other provinces.
“TBPs play a significant role in British Columbia, encompassing 22 per cent of members in registered pension plans. They cover three times as many members as defined contribution (DC) plans in the province. Additionally, TBPs in British Columbia hold 45 per cent more in plan assets than do DC plans,” the report states.
Objective-based regulation needed
Entitled Strength in Diversity: What We Can Learn from BC’s Target-benefit Plans, the report advocates for the regulation of TBPs in all provinces to be made more straightforward and effective. The report also notes the diversity in plan design. “For these TBPs to effectively serve their members, they need objective-based and clear regulations that reflect their nature and how they are managed,” the report adds.
British Columbia was the first province to pass TBP legislation in 2015, followed by Saskatchewan in 2017 when it introduced pension regulations changes for limited liability plans (that province’s version of the TBP), and Quebec in 2020. “At the time of this writing, other jurisdictions are reviewing their regulatory frameworks for TBPs. One of the main challenges for provincial policymakers is how to best create a regulatory environment for something that is formula based but not guaranteed, being subject to the sufficiency of the assets available.”
Funding rule differences
The report examines funding rule differences across the country, important considerations and includes sections on understanding the varied nature of TBPs, how they work and how they’re governed. Different funding methods and different provincial approaches to legislation and regulation are also detailed.
“It is important that legislation not be so prescriptive as to restrict any particular plan’s ability to deal with its specific issues. For example, a plan that regularly experiences significant changes to its active membership groups has greater challenges in projecting expected benefit cost and expected future cash flow than a plan with a more stable base,” the report continues. “Given the heterogeneity of the plans, it might be better to let plans determine their own financial goals appropriate for their situation.”
Member communications
Board governance and challenges associated with member communications are also examined.
“TBPs play an important role in providing their members with retirement security and they have become a fixture of the British Columbia pension landscape, where there is a tremendously diverse group of TBPs. For these plans to do their best for plan members, they need regulations that are clear in their objectives and don’t impede their natural operations,” the report concludes.
