Legislation finally tabled to permit Target Benefit Plans
On October 19, the federal government introduced Bill C-27, to provide the framework for employers to offer Target Benefit Pension Plans (TBPs) and to clarify rules regarding the use of Buy-Out Annuities.
BPG is very pleased with Bill C-27. Most notably, the proposed legislation prohibits the conversion of an individual’s earned Defined Benefit pension to a TBP without the consent of that individual. This consent requirement was absent from the 2014 federal consultation paper on this subject, which triggered a substantial effort by BPG to get that important point included in the legislation. Thanks to both the BPG Pension Committee and to individual BPG members who raised this concern with their respective Members of Parliament - your efforts have paid off!
Bill C-27 also Clarifies Rules for Buy-Out Annuities
The Buy-Out Annuity elements of the bill are largely academic to Bell pensioners. A buy-out annuity is a transaction whereby an employer satisfies its pension obligation by purchasing an annuity from a life insurance company that pays pensioners exactly what they would have been entitled to under their pension plan. The payments would then come from the insurance company rather than the employer, and, under the proposed legislation, it is the insurance company that would bear the full obligation for the future monthly payments. BPG considers that, for many pensioners in Canada, a buy-out annuity would improve the security of their pensions, particularly in cases where the long-term survival of the employer is uncertain.
In practice, this would not be an option for the Bell Canada pension plan, due to its size relative to the Canadian market for annuities, but this would be an approach available to Bell with respect to the many smaller pension plans that it manages. However, BPG understands that Bell has no plans to use buy-out annuities for any of its pension obligations, at this time.
Next Steps for BPG
While Bill C-27 is very good news for BPG, it would be premature to declare a full victory on the TBP file. The Bill has not yet been approved by Parliament, so there remains a possibility that it could be changed. In the coming months, BPG will be doing what it can to support the government’s decision to include the consent requirement in the Bill, including meeting with key MPs (both in government and in the Opposition) and Senators, along with other activities that may assist in the smooth passage of the Bill through the formal House and Senate approval processes.
Bill C-27 provides the legislative framework for TBPs, but some important details are being left to the “regulations” – a document that provides the working details behind the legislation. BPG is aiming to meet with officials within Finance Canada to ensure that our concerns are being appropriately considered as those regulations are being drafted.
BPG will continue to follow the TBP legislation and regulation phases until they are completed and we are satisfied.