The federal government announced yesterday proposed changes to the federal Pension Benefits Standards Act, 1985 (the “PBSA”) to permit federally-regulated employers to offer target benefit plans. This is a welcome change by the federal government. As discussed in prior posts (link1, link2, link3), we have seen target benefit legislation introduced in various jurisdictions across the country over the past few years.

The proposed legislation will introduce target benefit plans (or “TBPs”) as a plan design option, in addition to defined benefit and defined contribution plans. The target benefit regime may apply to single employer plans (irrespective of whether there is a collective bargaining agreement in place) or multi-employer plans. Notably, the legislation requires that target benefit plans must be established anew. That is, an existing plan cannot be converted to a target benefit plan (although members can consent to surrender benefits under an existing plan in exchange for benefits under a new TBP).

The proposed legislation is enabling legislation. Accordingly, much of the detail related to federal target benefit plans will be contained in the regulations. Given the relative complexity of target benefit plan regimes, we expect that the regulations will take some time to complete. However, federally-regulated employers should be thinking now about target benefit plans and whether there is a place for one in their workforce.

What are target benefit plans?

Target benefits are a plan design option that include attributes of both defined benefit (DB) and defined contribution (DC) plans. The main advantage of TBPs from an employer’s perspective is that TBPs have cost certainty for the plan sponsor, similar to DC plans. While similar to DB plans in many respects, including the pooling of longevity and investment risks, TBPs offer employers more flexibility to adjust benefits in response to a plan’s funded position. For more on target benefit plans, see our prior blog posts on the ABC’s of TBPs. (Part I, II, and III)

Who will the proposed legislation apply to?

The proposed legislation would permit employers in federally-regulated industries to implement target benefit plans for their employees.


Consistent with current governance trends, the proposed legislation contemplates that target benefit plans will have a governance policy and funding policy. The specific requirements of the governance policy will be set out in the regulations. The legislation contains certain guidance regarding the requirements for the funding policy. Specifically, similar to New Brunswick’s legislation, funding policies must contain a deficit recovery plan and a surplus utilization plan. The funding policy must also set out the employer and member contributions to the plan, as well as the objectives of the plan with respect to pension stability.

The legislation contemplates that target benefit plans must be administered by a board of trustees or other similar body. The board must include at least one individual selected by plan members, and at least one individual selected by former members, retirees and survivors, if the plan meets a certain size threshold. The process for the selection of the individuals to the board of trustees will be set out in the regulations. The legislation does not require that there be equal employer and employee representation on the board of trustees or similar body. For example, it appears that a board of trustees could be comprised of one employee appointee, one former member/retiree appointee and 6 employer appointees.

Risk Management

The proposed federal TBP regime contemplates that the plan’s funding policy will contain certain objectives of the plan with respect to pension benefit stability. The details of such objectives will be addressed in the regulations. Notably, the proposed legislation provides that these objectives, once established, cannot be amended. This means that employers must work closely with their actuarial advisors up front to ensure that these objectives will suit their needs for the long term.

The proposed legislation provides that the administrator of a TBP will have to ensure that actuarial modelling with regard to the objectives related to pension benefit stability must be conducted prior to the establishment of the plan and at such other intervals and times as are set out in the regulations.

Consent to Surrender and Exchange Benefits and Anti-Avoidance Rule

Under the proposed TBP regime, where the employer provides the option, there is an ability for members and former members to surrender their accrued benefits under a defined benefit plan or defined contribution plan in exchange for benefits under the new target benefit plan. Such a surrender and exchange must be done on an informed consent basis. The proposed legislation provides that in order to obtain consent for the surrender and exchange of benefits, an employer is required to provide a written explanation of the provisions of the TBP and any other information that may be prescribed to every member, former member or other person to whom the proposal is made, as well as to their spouses or common law partners. The written explanation and information is required to be “prepared in a manner that is understandable by a person who does not have technical or specialized knowledge of pensions”.

Similar to the rules in New Brunswick, the proposed federal TBP regime contemplates a 5-year anti-avoidance rule, whereby if member benefits are surrendered from a defined benefit plan to a target benefit plan and the plan is wound up within 5 years, the member will be entitled to the better of the benefit under the TBP or the one under the prior defined benefit plan.


The rules propose that the employer or employers, in the case of a multi-employer plan, will have to pay into the fund all contributions that they are required to pay under the plan’s funding policy. Similar to the New Brunswick regime, federal target benefit plans will be required to file actuarial reports with the Superintendent on an annual basis.


We are extremely pleased that the federal government will be making changes to the PBSA to accommodate target benefit plans as a design option. New Brunswick, Alberta and British Columbia all have previously introduced comprehensive target benefit regimes. We hope that other provinces, such as Ontario, will follow suit and introduce their target benefit regimes in short order. Further, changes to the tax rules are also needed to better accommodate single-employer target benefit plans.

The introduction of target benefits as a design option will be a welcome change. Federally regulated employers who have converted all or part of their workforce to defined contribution may wish to consider a target benefit plan for these employees. Due to the risk pooling of target benefit plans, such plans may be more beneficial to their employees, but still provide cost certainty for the employer. Federally-regulated employers with defined benefit plans, who are concerned about the cost volatility of such DB plans, may also wish to consider a target benefit plan as an alternative.