Governments and stakeholders need to embrace a wide range of innovative solutions if Canada's pension and retirement income system is to remain viable, according to a paper by the Association of Canadian Pension Management (ACPM). One way to do this is through target benefit plans (TBPs), it said.
"Having options for accumulating retirement income is critical to Canadians," said ACPM president Chris Brown. "We believe that viable and secure workplace pension plans remain the best solution for a large portion of Canada's workforce in providing for their retirement needs. Our target benefit plan paper puts forward an innovative concept, building upon input from numerous stakeholders, that we believe will provide another option for employers and employees to address the current shortfall in retirement income planning."
The target benefit plan design could, at a minimum, help to manage the market and interest rate volatility behind recent workplace pension plan developments. Target benefit plans could help rekindle employer interest in defined benefit-type models, offer greater benefits to employees, help achieve public policy objectives of government and benefit capital markets, said the paper. Target benefit plans, as one of a number of retirement income options, would give Canada one of the most comprehensive pension systems in the world, said ACPM.
While Canada's three-pillar retirement income system continues to be ranked as one of the best in the world, it is critical that workplace plans and individual retirement savings be enhanced, found the report.
"Planning for one's retirement can be both challenging and complex," said Brown. "It is incumbent on both governments and the private sector to provide a wide range of options tailored to the circumstances and needs of a wide range of individuals in planning for their retirements. This requires innovative solutions that make it as easy as possible for Canadians to save for their retirements. Target benefit plans are one such solution."
The support for target benefit plans is growing. On April 30, 2012, British Columbia introduced Bill 38, Pension Benefits Standards Act. A key element of Bill 38 is the inclusion of target benefit plans. Prince Edward Island has recently initiated Bill 41, Pension Benefits Act, which allows target benefit plans as well. Most recently, New Brunswick has introduced Bill 63 which contains the concept of a "shared risk plan". Similar legislation is expected in other provinces in the near future, according to ACPM.
"Target benefit plans are intended to add to, not replace, existing single employer defined benefit (DB) plans, as well as traditional defined contribution (DC) plans or new plan types like the pooled registered pension plan," said Brown. "In a target benefit plan, contributions and benefits are fixed according to a pre-determined formula (as in DB plans). Employers are not required to make additional contributions, and benefits are adjustable up or down should future conditions impact the amount of funding in the plan."
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