Apr 17, 2019
The prevalence of defined benefit (DB) plans across Canada has been in steady decline over the past 10 years, with experts pointing to provincial requirements that plans be funded on a solvency basis as one of the main reasons for DB plans falling out of favour. In her recent article in Benefits Canada, Jann Lee examines the trend away from DB plans and consults industry professionals to determine what impact provinces changing their funding requirements might have. Jana Steele, a partner in Osler’s Pensions and Benefits Group, offers some insight into provincial solvency reform.
Ontario and Québec have already made changes to their funding requirements, and other provinces, including British Columbia, Alberta, Manitoba, Nova Scotia and Saskatchewan, are currently reviewing their policies. However, as Jana explains, it might be some time before those provinces “make the switch.”
“It’s not a decision that a government would make lightly,” she says. “They want to make sure they’re getting all the information and making the decision that’s right for that jurisdiction.”
While some plan sponsors are switching their DB plans to defined contribution (DC) plans, others are considering different options, such as shared risk or target benefits. According to Jana, only British Columbia, Alberta and New Brunswick currently have legislation that allows target-benefit plans, while Ontario is considering it for multi-employer situations. She notes that plan sponsors are not required to fund these plans on a solvency basis.
“They’ll have different funding requirements around them because target benefits are in the spectrum between DB and DC,” Jana continues. “So you have fixed contributions to a target-benefit plan like you do in a DC plan and you have a targeted benefit. The benefit is defined in a way, but it’s not promised.”
To learn more about the status of DB plans, read Jann Lee’s full article “Could solvency reform in Canada lead to a DB pension revival?” in the April 12, 2019 edition of Benefits Canada.