March 14, 2024 – Target-benefit plans (TBPs) need regulations to be clear in their objectives and flexible to allow these plans to thrive, according to a new report from the C.D. Howe Institute.
In “Strength in Diversity: What We Can Learn from BC’s Target-benefit Plans,” author Barry Gros examines lessons from TBPs in BC, which generally target a benefit level developed from a set contribution and allow benefits to be adjusted depending on meeting specific financial metrics. These lessons can inform provinces that haven’t yet finalized their regulatory policy on TBPs and provide useful information for advisors working with new or existing plans.
Using survey data collected from 29 TBPs registered in BC, which was the first province to pass extensive TBPs legislation and sees these plans play a significant role there, Gros says these plans' diversity stands out.
For instance, 25 plans in the study were conversions from defined-benefit, multi-employer pension plans; two were conversions from defined-contribution plan arrangements; one was a new start-up TBP; and finally, one has been a TBP since its inception 50 years ago. While diverse, members in the construction and resource industries also dominated. Additionally, active membership was shrinking in nine cases, while 12 saw them increasing, three were static and five cases did not provide this information. Further, plan maturity also varied widely with the proportion of inactive-member liabilities ranging from zero percent to 91 percent.
Further, he says that TBP regulations across Canada can be made more straightforward and effective. “It’s important to develop regulations that reflect the nature of these plans and how they are managed,” says Gros. “This can be facilitated by a clear statement of the objective of the regulations and their desired outcomes in the context of the nature of these plans. Such a statement has often been missing when legislation has been introduced.”
He adds that there is room to raise the bar with respect to what is expected from boards and their members.
Notably, Gros says that TBP members deserve to receive clear and transparent communications about the nature of these plans in order to appreciate how they operate as well as to build trust in those who oversee them. They also need strong guidance and oversight at the board level to ensure members receive the benefits they deserve, and pension regulation and oversight can play a key role in providing guidance in these important areas.
TBPs are also complex financial entities, and it is important that regulations be less prescriptive than they currently are to allow a range of accepted methods within actuarial practices for them to assess their financial position and deliver designed benefit outcomes.
“Unfortunately, boards can fall into a pattern of doing what’s required by law,” concludes Gros. “Having less prescriptive regulation tends to force boards to better focus on what needs to be done for the benefit of the plan rather than just what is required by the law.”
For more information contact: Barry Gros, Chair, Board of Trustees of the University of Victoria Money Purchase and Combination Pension Plans; and Lauren Malyk, Senior Communications Officer, C.D. Howe Institute, 416-865-1904 Ext. 0247, lmalyk@cdhowe.org
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.