Characteristics of a target-benefit pension plan

The target-benefit pension plan has the following characteristics:

  • The contributions paid by the employer and the benefit target level are provided for in the plan's provisions.
  • The plan's obligations are to be borne by the members and beneficiaries. This means that these persons are responsible for subsequent deficits of the plan.
  • In the case where contributions provided for are insufficient, the benefits related to credited service, including the pensions in payment, may be reduced based on the recovery measures set out in the plan's provisions without having an amendment made to the plan and without the consent of members and beneficiaries.
  • The surplus assets belong to members and beneficiaries.

The Supplemental Pension Plans Act provides for circumstances giving rise to the application of recovery measures. The provisions of a target-benefit pension plan must specify the measures that will be applied, their objective and the conditions and procedure. They must also provide for circumstances giving rise to the restoration of benefits or the use of surplus assets, as well as the procedure for applying them.

The actuarial valuation report determines whether recovery measures must be applied or if restoration of reduced benefits or an appropriation of surplus assets can be made.

The actuarial valuation report must show the sufficiency of contributions and must describe the plan's financial situation, taking into account the recovery measures applied, the restoration of benefits made or the surplus assets used, if applicable.

The benefit target level

The benefits provided for in the provisions of a target-benefit pension plan constitute the target level to meet. The benefits that members and beneficiaries receive can, in certain circumstances, be less than the plan's target level.

The target level of a target-benefit pension plan is not limited to a normal retirement pension This link will open in a new window.. It includes all the benefits provided for by the plan, such as the death benefit, early pension, etc.

Restrictions on benefits

A target-benefit pension plan cannot provide for the following benefits:

  • a pension based on the final average salary or the average of the highest salaries
  • an automatic indexation of the pension after retirement, except if it is an indexation established based on a fixed rate
  • a benefit payable only when a plan is terminated
  • a subsidy for early retirement based on the years of service.
Note that...

If the plan provides for advantages for an early retirement or the indexation of a pension before retirement, all members ceasing their active membershipmust benefit from it.

Other restrictions

Other restrictions apply to target-benefit pension plans. Among other things, a plan that has target‑benefit provisions cannot:

Conversion of a plan into a target-benefit pension plan

It is forbidden to convert a defined-benefit plan or defined benefit-defined contribution pension plan into a target‑benefit pension plan. However, it is allowed to convert a multi-employer negotiated contribution pension plan into a target-benefit pension plan.

Sufficiency of contributions

In the case of a target-benefit pension plan, the contributions that must be paid into the pension fund are the ones provided for by the plan's provisions. However, they must satisfy 2 sufficiency tests:

  1. Cover the current service contribution including the current service stabilization contribution.
  2. Cover the required amortization payments, if applicable.

If the sufficiency tests fail, a recovery must be carried out, based on the measures planned for each test.

Legal references

  • Sections 7.1, 14, 22, 106, 146.44.1 to 146.44.3,, 146.45 to 146.48, 146.52, 146.53, 146.58, 146.72, 146.75 to 146.77, 146.79, 146.84, 146.101, 194.1 of the Supplemental Pension Plans Act This link will open in a new window.
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