Canadian Labour Reporter

7 Canadian HR Reporter, a Thomson Reuters business 2014 CANADIAN LABOUR REPORTER ColleCtive Agreements news Photo: Mark Blinch (Reuters) Premier Kathleen Wynne forged ahead with the Ontario Retirement Pension Plan, launched after the federal government balked on reforms to the national pension program. Wynne's mandatory pension contribution plan is, of course, dependent on the outcome of the provincial election in June. employees in the federally regu- lated private sector and Crown corporations. A middle ground The idea is that target benefit rubrics establish a middle ground between the much-maligned tra- ditional DB (which guarantees a pension backed by the financial position of the employer) and DC plans (which provides a ben- efit that relies on investment re- turns). The target benefit framework would be made available to both existing and new pension plans and, should this be the preferred route, would require a consen- sus between employees and their employers. After introducing the plan, minister of state for finance, Kevin Sorenson, said the timing has nev- er been better for the introduction of such schemes. "Private pension plans across Canada are facing increasing chal- lenges in providing the secure and predictable stream of income to Canadians in their retirement," Sorenson explained. "Traditional defined benefit plans are having difficulty adapting to people living longer and to a fragile global eco- nomic environment with relative- ly low interest rates. And defined contribution plans are exposed to financial market volatility." A target benefit plan puts the investment risk on all contrib- uting members, who are able to share collectively risks relating to longevity and mortality. According to the federal gov- ernment, target benefit plans combine the best traits of DB and DC plans and form a sustainable hybrid for both employee and employer. The key, of course, be- ing predictability and levelling the playing field. "Unlike defined contribution plans, target benefit plans would offer a more predictable stream of benefit payment and a high benefit security, since the target benefit would be based on a pre- determined formula," Sorenson went on to say. "Members and retirees would benefit from the pooling of longevity risk, which is not a feature of defined contribu- tion plans." Dan Kelly, president of the Ca- nadian Federation of Independent Business (CFIB), said the hybrid model combines facets of both DB and DC plans and effectively takes a medium-sized step towards wider pension reform. Target benefit plans could also provide an alternative for private sector operators, which may stem the rush away from DB pensions. "Companies are dumping (DB plans) very fast because of the risks associated with them, the financial risks to the orga- nization and the costs associ- ated with defined benefit plans. They're moving quickly to hav- ing no plan at all, or having some form of defined contribution plan," Kelly said. Where this situation rings true, a target benefit plan might serve as a fail-safe for employees in dan- ger of losing a retirement plan al- together. Something is always bet- ter than nothing, Kelly noted. He cited Canada Post as the poster child for what not to do. With its colossal unfunded pen- sion liabilities tallying billions, stakeholders are scrambling for a way to revive the beleaguered white elephant. "This may be a way out of jail — a move to something that is a little more affordable, a little less risky to taxpayers," Kelly said. But this latest move favours one breed of employer over the other, according to Clare Pitcher, a senior consulting actuary and shared-risk pension pundit with PBI Actuarial Consultants, head- quartered in Vancouver. Because DB plans are going the way of the dodo in the private sec- tor, a target benefit plan — with fixed contributions and no limit or liability beyond that — func- tions much like a DC plan. "Where it doesn't work so well is if you're in the public sec- tor pension defined benefit plan. Why would you want a target benefit plan where you're on the hook?" he said. "It's a collective risk, you're going to be on the hook for the risk, rather than the government or the employer." Ontario goes it alone On the heels of Sorenson's an- nouncement, Ontario's provincial government gave teeth to its plans for a its own retirement program. While the nitty-gritty details are still forthcoming, the On- tario Retirement Pension Plan would see workers without pen- sion plans contributing up to 1.9 per cent of their salary — to be matched by employers — into a retirement savings program. With pension reform a hot but- ton issue for most administra- tions, danger looms. Or as the old adage goes, too many cooks can spoil the soup. "We have to be careful not to over-regulate and over-struc- ture these things," said Pitcher. "Over-regulation will be the killer of these plans, even before they're started. They have differ- ent mechanisms." Shared-risk plans level playing field: Government < from pg. 1

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