“The shifting of risk is a dramatic change in pension funding. Unions, for the most part, were on board with the changes (in New Brunswick) and were part of the process. It has the same pooling as defined benefit plans, with the same benefits that pooling provides. Assets are managed as they would be in a DB plan. Asset-liability modeling drives the volatility of investments, with a lesser percentage in equities and more in infrastructure.”
Paul Litner, Toronto-based partner and chairman of the pensions and benefits department at Osler Hoskin, added that while the Quebec proposal isn't a strict target benefit plan, it applies the shared-risk concept similar to jointly sponsored pension plans in Ontario like the C$140.8 billion Ontario Teachers' Pension Plan, C$65.1 billion Ontario Municipal Employees Retirement System and C$51.6 billion Healthcare of Ontario Pension Plan, all in Toronto. In those plans, employers and employees also split the contributions evenly.
“The real issue is sustainability,” Mr. Litner said. “If provinces think the current system is unsustainable, they have to take action. What's controversial to unions is, while no one objects to risk-sharing going forward, that it's a good thing, the big issue is past service. They agreed to the benefit in previous negotiations. They say, "I've already earned this, but now you're changing the deal.'”
Police officers and firefighters have been the most vocal in opposition to the legislation. “They don't want to share risk 50/50 with the government,” said Bernard Dussault, pension and benefits officer at the Professional Institute of the Public Service of Canada, Ottawa, a union representing scientists and professional public service employees. “The worst part is the accrued benefit, if approved, could be reduced for both workers and retirees, whereas it should be OK for benefits to be reduced for workers, but only future benefits, not accrued benefits. If we start allowing this, what will they do next? I find this very unacceptable. It allows sponsors to renege on their responsibility.”
The proposal has wide support among taxpayers who are weary of high rates and fearful of having to fund bailouts of municipal plans, said Mercer's Mr. Hudon. “With public-sector plans, it's the impact the deficits would have on taxpayers,” he said. “Quebec is known to have high taxes.” He said funding ratios in many plans are “at historic lows, and the costs to fund those plans would have a major impact on taxes.”
“It's not a pension fund issue, it's a public finance issue,” added Frederic Masse, partner, labor and employment group, at the law firm of Borden Ladner Gervais LLP, Montreal. Mr. Masse said the chances of the bill's passage in Quebec were “extremely high, at least (for) the 50/50 risk sharing and the reopening for vested rights” like benefit levels and indexation.
Shared-risk plans “is the next big trend, the next wave of pensions in Canada,” said Mr. Litner of Osler Hoskin. “This is a countrywide trend. The sustainability issue is what started it, and New Brunswick took first action.”
On the federal level, Canadian government employees have been invited to join a target benefit fund. Also, Prince Edward Island, Nova Scotia and British Columbia are considering introducing similar shared-risk legislation, sources said. In Alberta, two bills related to target benefit plans, one of which would reduce accrued benefits, the other not, have been tabled for future consideration.