Ottawa is proceeding with its plan to introduce shared risk pension plans in the federally regulated sphere and will likely introduce implementing legislation early in 2015, says minister of state for finance, Kevin Sorenson.
The federal government completed two months of consultation on the proposal Wednesday and Sorenson said it would likely begin drafting a bill in the fall.
The government has been under pressure from labour groups and some provinces to enhance the Canada Pension Plan, but Finance Minister Joe Oliver said as recently as last week that Ottawa doesn’t favour the move even if Ontario opts to go it alone.
Instead, the government has backed an incremental approach, including pooled pension plans, tax free savings accounts and more recently the shared risk proposal, also referred to as target benefit plans.
Sorenson said in an interview that the target proposal is needed because many defined benefit plans have run into funding difficulties since the economic crisis and many Canadians, especially new hires, are no longer being offered defined benefits.
The shared risk plans allow for both employers and employees to adjust contributions and benefits, up or down, in times of surplus or deficit.
“Many companies now are moving new employees into defined contribution plans out of defined benefit plans and I think they and the employees would want a third option,” Sorenson said.
“We need long-term security and a defined contribution plan doesn’t give that level of security.”
The option would also allow defined contribution plans to upgrade to shared risk, providing a higher level of assurance on what benefits will be at retirement.
Liberal critic John McCallum has criticized the proposal as inadequate, pointing out that it affects only the relatively small percentage of workers who are in federally regulated industries and those working for Crown corporations, saying it would likely lead to a downgrade in pension benefits overall.
Companies currently offering defined benefit plans have an incentive to embrace the notion of sharing risks with employees, but there is little incentive for firms with defined contribution plans to take on greater funding obligations, McCallum said.
Sorenson stressed that the proposal would be voluntary for employers, employees and those already retired and receiving benefits, although he said the size of the majority that would constitute consent on the part of employees and retirees has yet to be determined.
“Part of the discussion is what does this consent mean? Is it every individual, three quarters, 50 per cent plus one, and what are the consequences if you don’t consent,” he explained.
The option for the new plans would be available to the over 1,200 federally regulated plans, including Crown employees. The proposal does not apply to the public service pension plan, or the ones in place for members of the Canadian armed forces and the RCMP.