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University of British Columbia fund extols benefits of target benefit plans

While the concept of shared-risk pension plans has been debated in Canada for the last several years, the University of British Columbia Staff Pension Plan, Vancouver, was shown at the Association of Canadian Pension Management National Conference as an example of how the concept has worked.

"We've had an innovative plan design" since it began in 1972, said Orla Cousineau, executive director of pensions at the university, which sponsors the C$1.5 billion ($1.2 billion) pension plan. "People in 1972 had the forethought to make sure we had a defined funding policy and to never give up on our belief in the plan design."

Ms. Cousineau spoke Thursday at the ACPM conference in Banff, Alberta. Her talk was part of a plenary session on innovation in pension plan design.

Ms. Cousineau said participants in the plan have been notified since it began that their pension benefits could be reduced if it falls below 100% funding on a projected 25-year basis. However, the plan has never reduced benefits for its participants, Ms. Cousineau said, although it has reduced indexing for future benefits to 50% of inflation from 100%.

The 6.5% contribution rate for employees also has not changed since the plan began, Ms. Cousineau said. The employer rate is 10% but a 1.8 percentage-point reduction was made after the C$326.5 billion Canada Pension Plan, Ottawa, was introduced, bringing it to the current 8.2% of pay.

Meeting requirements of British Columbia pension regulations has been a challenge, Ms. Cousineau said, because while the plan was considered a defined contribution plan from the start, the province recognized the plan as a defined benefit plan subject to solvency funding rules from 1997 until last year, when it changed legislation to recognize target benefit plans.

"Finally, the pension regulatory system has caught up with us," she said.

Also at the session, Paul Owens, deputy superintendent of pensions for the government of Alberta, said that the use of target benefit plans so that employers can share risk in private pension plans with participants would allow those plans to pool their investment and mortality risk in a way defined contribution plans generally can't. "That's key to delivering the benefit promise." He added that there would be a need to change pension legislation across Canada's provinces to allow conversion of past service defined benefits to a target benefit formula, although such coordination has already occurred between Alberta and British Columbia.