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Article | Global News Briefs

Canada: Québec draft legislation to allow target benefit pension plans

Retirement|Investments|Total Rewards
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By Annie Demers , Charles Lemieux and Dominic Théberge | November 30, 2020

Bill 68 would give employers another retirement plan design option that shares risk differently than existing DB and DC plans.

Employer Action Code: Monitor

Bill 68, which the Québec government has submitted to the province’s National Assembly, would allow employers to establish target benefit pension plans (TBPPs) and would amend certain other existing pension rules. Generally, TBPPs offer a compromise between defined contribution (DC) plans, where investment and longevity risks are borne by the individual plan members, and defined benefit (DB) plans, where those risks are borne by the employer. A TBPP is essentially a type of career average DB plan where the employer’s responsibility is limited to a fixed contribution while the employees collectively bear longevity, investment and other financial risks. Currently, only certain companies in the pulp and paper sector in Québec are permitted to offer TBPPs. Alberta, British Columbia, New Brunswick and Nova Scotia allow for the establishment of TBPPs (sometimes under different names). Ontario passed legislation to allow TBPPs, but it is not yet in effect. Similar plans introduced or proposed in other countries (e.g., Japan, Netherlands, U.K.) have attracted some interest by employers.

Key details

Notable TBPP design features

  • Plans may be single- or multi-employer arrangements, for unionized or non-unionized employees in Québec; those with members outside of Québec would only be allowed to the extent determined by future regulations.
  • The plan determines the benefit target (corresponding to the normal pension and other benefits) to be used to determine current service contributions.
  • A plan may contain both target benefit and DC provisions, but not target benefit and DB provisions.
  • Members and beneficiaries assume the plan liabilities and are entitled to any surplus assets (subject to tax rules).
  • Employer contributions are limited to those provided for under the plan document.
  • Normal pension and other benefits under the plan may be reduced if contributions are insufficient to fully fund them.
  • Target benefits must be based on career average pay or flat dollar designs.
  • The plan may not provide for postretirement indexation or for early retirement benefits that depend on the member’s years of employment or credited service (e.g., bridge benefit or early retirement subsidy).

TBPP financial recovery measures and restoration of benefits

  • Plan documents must specify the measures for the recovery of the plan’s financial situation to be applied if the valuation reveals that contributions are insufficient to fund the targeted benefits, as well as conditions for restoring benefits. The pension committee may not have any discretion in these matters.
  • Recovery measures may include increases in member contributions, increases in employer contributions (subject to the limits set out in the plan text), and reductions in benefit targets or accrued benefits (including those in payment).
  • Benefits that have been reduced can be restored, if a later actuarial valuation shows, on a going concern basis, that plan assets are at least equal to plan liabilities increased by the value of a stabilization provision target level.

Employer implications

The ability to establish a TBPP would provide employers with an additional retirement plan design option, allowing risks to be shared in a different manner than under existing DB or DC plans. TBPPs would likely be available for plans registered in Québec, whether they include members in Québec only or in other provinces as well. It would also be possible to convert certain existing DC plans (but not most types of DB plans) into TBPPs subject to a consultation process with members and beneficiaries in certain circumstances. For further details, see our Client Advisory: Québec Bill 68 will allow target benefit pension plans.

Contacts


Charles Lemieux

Dominic Théberge

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