OTTAWA TO PROPOSE NEW PENSION PLAN

Apr 24, 2014

By Scott Walker

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The federal government is going to offer a new option for pension reform.

Minister of State for Finance Kevin Sorenson is expected to unveil a new “target benefit plan” during a speech to the Economic Club of Canada here in Toronto today.

The plan would be a mix of the two types of plans being offered now. Defined Benefit plans offer a guaranteed payout on retirement. Any shortfall in funding the plan has to be made up by the company, which puts a strain on corporate finances during hard economic times.

That type of plan is gradually being phased out by companies in favour of a Defined Contribution plan, where the payout is not guaranteed, but depends on the performance of the plan.

The target benefit plan is a hybrid of the two. It sets out contributions by both employers and employees that are expected to produce a certain level of income. But, if performance falls short, the pension income can by reduced.

The proposal would apply to crown corporations and private companies in federally-regulated sectors such as banking, transportation, and telecommunications. Ottawa hopes it will encourage more companies to offer pensions without fear of having to pay heavily in poor times.

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