March 4, 2015 – Ottawa needs to change federal tax rules so that they accommodate single-employer Target Benefit Plans (TBP), according to a new C.D. Howe Institute report. In “The Taxation of Single-Employer Target Benefit Plans – Where We Are and Where We Ought To Be,” authors Barry Gros, Karen Hall, Ian McSweeney and Jana Steele propose a tax treatment for single-employer TBPs that is consistent with the existing tax regime.
“Many policymakers and regulators across Canada are in the process of making the required changes to pension standards legislation that would recognize single-employer TBPs,” remarked Steele. Gros adds, “We encourage Ottawa to amend the tax rules to address the evolving Canadian pension landscape.”
A lot of pension sponsors have been looking for alternatives beyond traditional pension arrangements to better manage their pension risks and those of plan members. Many find defined-benefit (DB) plans too risky and expensive, since they promise pre-determined pension amounts which may not be sustainable, particularly during times when the economic and demographic environment is unfavorable. Defined-contribution (DC) plans are not ideal either, since the pension payout is unknown and will depend entirely on contributions, investment returns and how long the individual will live. TBPs constitute an attractive hybrid of DB and DC plans in which employer and employee contributions are fixed to fund target pension payouts.
The authors offer a blueprint of how tax rules can be changed to better accommodate TBPs. Hall concludes: “Until federal changes are made, uncertainty surrounding the tax treatment of TBPs will continue to hinder their adoption by employers and employees.”
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. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.
Click here for the full report.
For more information contact: Barry Gros, former Associate Partner, Retirement, Aon Hewitt; Karen Hall, Associate Partner, Retirement, Aon Hewitt; Ian McSweeney, Partner, Pensions and Benefits, Osler, Hoskin & Harcourt LLP; Jana Steele, Partner, Pensions and Benefits, Osler, Hoskin & Harcourt LLP. Phone: 416-865-1904 Ext. 9997; E-Mail: kmurphy@cdhowe.org.