The federal government has recently announced it will be launching consultations on a potential framework regarding target benefit pension plans (TBPs) for federally regulated private-sector and Crown corporation pension plans. The federal government is seeking views on the approach and elements of a proposed federal TBP framework.

TBPs have recently been attracting more attention in Canada and aim to incorporate the advantages of defined benefit plans (DB), such as pooling investment and longevity risk. However, unlike traditional DB plans, benefits to members are “targets” that, along with contributions, may be adjusted based on the plan’s financial situation. Members and beneficiaries would also be responsible for funding deficits.

The federal government has released a consultation paper with proposals and requests for views on the adoption of TBPs in the areas of administration and governance, funding policy, contributions, benefit structure, funding deficit recovery plan, funding surplus utilization plan, disclosure and communications, conversion of pension plans to TBPs, portability and locking-in rules, individual termination, plan termination and windup, and application to multi-employer plans.

Notable proposals for the federal TBP framework include a joint-governance structure that would be administered by a board of trustees or similar body with a fiduciary duty to the plan. A deficit recovery plan is also proposed for TBPs, which would set out measures to be taken in relation to a funding deficit potentially including increasing contributions or reducing benefits. The proposed federal TBP framework also allows for conversion of both DB and defined contribution plans to TBPs. The proposed approach for conversions is to “… allow for a reduction in accrued benefits so as to accommodate federally-regulated DB plans that, through consent from employees and retirees, are seeking conversion to a federally-regulated TBP.”

Written comments should be sent by June 23, 2014, via email to pensions@fin.gc.ca.