TORONTO--(Sibson’s newest Spotlight discusses target benefit plans, a new pension plan design that is generating considerable interest throughout Canada although so far only New Brunswick has a law and implementing regulations in place that permit employers to offer the design. New Brunswick’s approach to target benefit plans presents a workable model for other jurisdictions to emulate.)--
According to Ron Olsen, FSA, FCIA, VP for Sibson in Toronto, “Although Canadians are proud of many of the country’s health care, education and transportation systems, they have growing concerns about the country’s retirement system. The provinces have a role to play, but very limited budgets. Consequently, private sector plans play a disproportionate role in providing retirement income. With the shift from DB plans to DC plans, investment, interest rate and longevity risk are transferred to individuals who are often not in a position to effectively and efficiently manage it.”
How does New Brunswick’s new design work? Olsen says, “The concept is that benefits are adjusted based on the funded status of the entire plan (not just an individual’s own account). Since contributions are fixed like a DC plan but investment, interest rate and longevity risks are pooled, like a DB plan, target benefit plans have many advantages for participants. If the cash and accounting certainty of target benefit plans lead to their adoption by employers, then most of what many private sector employees have lost as the Canadian retirement income system has abandoned DB plans will be regained.”
The Spotlight is available on the Sibson website: http://www.sibson.com/publications/spotlight/sept2012Canada.pdf
Sibson Consulting (www.sibson.ca), a Division of Segal, provides strategic HR solutions related to the planning, implementation and operation of total rewards, compensation, retirement and health benefit programs. Sibson's services encompass talent management, benefits, organization design, sales effectiveness, change management and HR technology.