October 27, 2021

A draft regulation on the establishment of target benefit plans (TBPs) — whether new plans, converted defined contribution (DC) plans, or multiemployer-negotiated contribution plans (NCPs) — was published in the Official Gazette on 22 Sep 2021. Comments are invited through 6 Nov 2021. The draft regulation focuses heavily on communication and disclosure to ensure members clearly understand the specific nature of this new type of plan and the associated risk management. 

Highlights of TBP-specific measures

  • Additional content would need to be provided for various TBP member communications, such as plan summaries, statements of benefits and annual meetings.

  • The requirements for what should be in actuarial valuation reports is included, such as documentation of equity among members in the context of any recovery, restoration and use of surplus assets.

  • Contribution sufficiency would need to be demonstrated separately for past and future service, and an analysis of recovery plans must be conducted separately, if required.

  • TBP’s may stipulate whether members affected by the withdrawal of a participating employer can maintain their benefits in the plan or if they must transfer them (including the purchase of an annuity for retirees). The default option could be to retain plan members who do not make an election.

  • The term “negative pension,” although long used in practice, would be introduced for spousal sharing and early pension situations. The concept of a negative target pension would be introduced for TBPs.

  • The regulation covers how to convert a DC plan into a TBP (individual consent required), an NCP into a TBP (deemed consent if fewer than 30% of members object), and a TBP to a defined benefit (DB) plan.

The draft regulation does not include rules applicable to the calculation of transfer values for TBPs. In principle, regular solvency rules would apply — even though the TBP-related provisions of the Supplemental Pension Plans Act would allow for a calculation based on the plan funding. These rules will be important in TBP administration, and it is hoped that more guidance will provide clarification.

Other measures 

  • Subject to plan amendments, DB plans would be able to provide more solvency updates — as frequently as every month. Currently, aside from 2020 COVID-19 rules, updates must take place once a year. Plan amendments would need to specify the frequency as well as if updating is done automatically or only when required by law. The plan actuary would determine how the degree of solvency should be calculated in the actuarial report.

  • The minimum Dominion Bond Rating Service (DBRS) rating required for a security to be recognized as fixed income for the purpose of calculating the stabilization provision would be BBB‒ for bonds (from BBB), and R-2 low for money market securities (from R-2 mid).

  • New minimum disclosures for statements of benefits, which could affect all types of plans, would be required.

  • The measures and steps that would apply when an employer withdraws or when a NCP is terminated are included.

Related resources

Non-Mercer resource

Mercer Law & Policy resource

Luc Dionne
by Luc Dionne

Principal, Mercer Wealth

Stephanie Rosseau
by Stephanie Rosseau

Principal, Mercer’s Law & Policy Group

Fiona Webster
by Fiona Webster

Principal, Mercer’s Law & Policy Group

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