Section 147.1

Features of target benefit plan (p.1068)

[W]e refer to TB plans as workplace pension plans with the following three characteristics:

• the TB plan includes a benefit formula which is a "target," and is not guaranteed;
• employer contributions (and where applicable, employee contributions) to a TB plan are fixed, whether by collective agreement or otherwise; and
• both past service benefits and future benefits can be reduced while the plan is ongoing and upon wind-up. [fn 2: Alternatively, when assets are more than sufficient to pay the "target" benefit, benefits may be increased and/or ancillary benefits may be added.]

TB plans have characteristics that resemble both defined benefit ("DB") and defined contribution ("DC") plans. The contributions that an employer is required to make to a TB plan are fixed, similar to a DC plan (e.g., a percentage of an employee's earnings or a flat amount per hours worked). Once contribution levels are known, a benefit formula is set. The benefits payable to members from the TB plan are not directly tied to contributions made to the plan, as is the case with a DC plan. Instead, benefits under a TB plan are similar to a traditional DB plan in that the formula for the "targeted" amount of benefits to be paid are known in advance and calculated based on a plan member's years of service (e.g., a flat-rate benefit formula), or years of service and earnings (e.g., a final-average earnings or career-average earnings formula)….

Characterization as defined benefit plan (p. 1069)

TB plans are similar in design to MP plans in that contributions to the TB plan are fixed. From a policy perspective, one can argue that TB plans should be treated the same as MP plans for PA purposes. [fn 8: As discussed below, the MP PA calculation rules apply to SMEPs, which have many of the same design features as a TB plan.] TB plans do not, however, fall within the MP regime. A MP provision is currently defined as the terms of a pension plan (a) which provide for a separate account to be maintained in respect of each member to which contributions are credited, and (b) under which the only benefits payable to a member are benefits determined by the amount in the member's account. [fn 9: Section 147.1 of the Act.]

As TB plans provide a benefit formula that is not solely tied to a DC account balance, a TB plan does not meet the current definition of a MP provision.

DB Provisions

A DB provision is defined under the Act as the terms of a plan under which benefits in respect of each member are determined in any way other than that described in the definition of "money purchase provision." [fn 10: Section 147.1 of the Act.] Based on this definition, a TB plan would fall within the definition of DB provisions under the current RPP regime in the Act.