When British Columbia's Pension Benefits Standards Act comes
into force on September 30, 2015, employers that sponsor plans in
British Columbia will have more plan design options available to
them. Following New Brunswick and Alberta, both of which currently
have comprehensive target benefit regimes in place, British
Columbia's pension laws will soon include provisions for target
benefits plans (TBPs).
British Columbia is introducing sweeping pension changes with
its new pension statute, many of which mirror changes to
Alberta's amended Employment Pension Plans Act and regulations that came into effect on September
1, 2014. The amendments, which are part of an effort by British
Columbia and Alberta to harmonize their respective pensions laws,
include the introduction of target benefit regimes.
Target benefits are a plan design option that include attributes
of both defined benefit (DB) and defined contribution (DC) plans.
TBPs have cost certainty for the plan sponsor, similar to DC plans.
While similar to DB plans in many respects, including the pooling
of longevity and investment risks, TBPs offer employers more
flexibility to adjust benefits in response to a plan's funded
position. (For more on target benefit plans, see our
prior blog posts on the ABC's of TBPs.)
From the plan member perspective, a TBP may be preferable to a
DC plan. Under a traditional DC plan, members generally bear the
risks (including, for example, investment and longevity risks) and
are often required to make complex investment decisions. A TBP will
provide for a pension formula, similar to a DB plan. However,
unlike a DB plan, accrued benefits under a TBP may be reduced if
the plan's funding level falls below a certain level. In this
case, a plan amendment must be filed. Generally, the plan design
will build in the remedial steps that have to be taken where a TBP
fails the required funding test and the priority order in which
such steps are implemented.
Similar to the Alberta rules, B.C.'s target benefit regime
includes a provision for adverse deviation (PfAD) for funding and
risk management purposes. The PfAD under the Alberta and B.C. rules
is determined by two components: (i) a certain percentage based on
the percentage of the fund that is invested in equities and (ii)
the amount, if any, by which the assumed discount rate exceeds the
benchmark discount rate. The regulations for both jurisdictions
also require that stress testing be performed, in respect of
elements that the actuary believes may pose a material risk to the
TBP's ability to meet the funding requirements. Such testing
must be done in a manner satisfactory to the applicable
A distinguishing feature of the British Columbia legislation is
the ability to convert certain accrued benefits to target benefit.
Though B.C.'s new pension laws are similar to those recently
adopted by Alberta in most respects, this is a crucial difference.
In Alberta, a proposed amendment which would have permitted the
conversion of accrued benefits was defeated. (See our
prior blog post on Alberta's Bill 10.) However, an Alberta
DB plan may still move to a TBP for future service.
In contrast, British Columbia will soon allow conversion of
accrued benefits for certain plans if there is union consent. B.C.
passed Bill 10, Pension Benefits Standards Amendment
Act, 2014, on May 9, 2014, which includes provisions for
such conversion. As such, B.C.'s new Pension Benefits
Standards Act will allow multi-employer, negotiated cost plans
to convert DB provisions to target benefit provisions in a manner
that reduces accrued benefits – if a trade union representing
plan members agrees to the reduction.
Now that British Columbia has taken the laudable step of
expanding plan design options in the province to include TBPs, we
hope that other jurisdictions will follow. As pensions are
voluntary, employers should be provided with choices –
including TBPs – in providing pensions to their employees.
B.C.'s new legislation is a step towards permitting alternative
plan designs and encouraging the continuation of private sector
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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