Stand Up for Pensions – Bill C27
An Act to amend the Pension Benefits Standards Act(1985), is an attack on the retirement security of Canadians.
On April 24, the Department of Finance Canada unveiled a proposed framework for Target Benefit Pension Plans (TBPs), also referred to as shared risk plans. If passed into law, this would allow federally regulated private sector and Crown Corporation employers to offer a TBP to their employees or to convert an existing defined benefit (DB) or defined contribution (DC) pension plan into a TBP.
WHAT IS A TBP?
The TBP concept is not new. It has existed for many years in the form of negotiated contribution Multi-Employer Pension Plans (MEPPs), which are especially popular in certain industries. What is new is the notion of TBPs in the singleemployer environment.
In its most basic form, a TBP is a pension plan that aims to provide a defined benefit (DB), but with fixed contributions. To plan members, it is virtually indistinguishable from a regular DB plan except that accrued benefits are subject to reduction if the funding level falls below a given threshold. To avoid a reduction, TBPs are governed by more formal funding and benefit policies than one typically finds in defined benefit plans. In addition, conservative assumptions can be used in the setting of the target benefit with benefit improvements granted only if there is a significant funding surplus.
TBP assets are pooled for investment purposes and are managed in much the same way as in a DB plan although the TBP fund might be invested a little more conservatively to reduce the chances of a funding deficit.
One variation on the basic TBP allows for contributions to vary within a narrow range rather than being completely fixed. This is the idea behind the Shared Risk Pension Plan that was adopted recently by the New Brunswick Government (see the sidebar “The New Brunswick SRPP”).
Defined Benefit Pension Plan vs. Target Benefit Plan
Defined benefit pension plans
- Guarantees a set amount of benefits for life after retirement based on earnings and years of service.
- Employers are responsible for covering funding deficits in the pension plans.
- Earned benefits are legally protected.
Target benefit pension plans
- Aims for a target amount of benefits, which can be reduced if the plan cannot fully fund those benefits.
- Employees assume all the risks and suffer the full impact of plan deficits.
- There are no legal requirements to fund target benefits.
- While Prime Minister Justin Trudeau said in 2015 that defined benefit pension plans that workers and retirees have already paid into should not be retroactively changed into target benefit plans, this is exactly what Bill C-27 will do.
- Under C-27, workers and retirees could see their accrued defined benefit pensions retroactively converted to target benefit pensions. The concern is that the conversion may reduce current and future pension payments as virtually all financial risk is shifted from the employer to plan members. Even retiree pensions could be reduced.
PETITION TO THE MINISTER OF FINANCE
Dear Minister Morneau,
I am very concerned about Bill C-27 and the impact it will have on defined benefit plans across Canada.
For this reason, I took the time to write to tell you and my Member of Parliament how I feel.
This bill directly contradicts election promises made by Prime Minister Trudeau. As Canada’s Minister of Finance your priority should be the development of policies that improve retirement security in Canada, such as ensuring that women and persons with disabilities are not left behind on the new CPP expansion.
You should not be introducing proposals that undermine the decent pension plans unions have negotiated.
I ask that you withdraw Bill C-27 and focus your attention on improving retirement security for all Canadians.