March 2021 issue

A new retirement saving option for Québec workers

Do you know about target-benefit pension plans? If not, rest assured: it is normal, because up until recently, those plans were authorized exclusively in the pulp and paper sector, under specific conditions.

Last December, target-benefit pension plans were added to already available supplemental pension plans, such as defined benefit pension plans and defined contribution pension plans.

This new saving option is adapted to today's reality in favour of workers who will be able to pool their risks, and in favour of employers for whom the new option will provide good predictability.

Any company, regardless of its sector of activity, or any agency, such as a union, can set up a target-benefit pension plan. Workers with different employers (multi-employer plan) can also access this type of plan.

What is a target-benefit pension plan?

Generally, a target-benefit pension plan is a plan that is halfway between a defined benefit plan and a defined contribution plan.

This type of plan does not guarantee members a fixed benefit. A target level, which constitutes an objective of benefits payable, is rather established. Therefore, the pension amount, contrary to the pension amount of a defined benefit plans, can vary depending on the plan's financial situation.

Recovery measures must be provided for by plan provisions and can apply when the plan's financial situation deteriorates. Furthermore, if the plan's financial situation recovers, recovery measures can apply in order for the benefits to return to the target level.

For example, if the financial situation improves, the plan could expect a decrease in member contributions or an increase in accrued benefits.

However, if the financial situation deteriorates, the plan could expect an increase in member contributions, a decrease in accrued benefits or a decrease in the target level in the future.

Better protection for workers

For workers, a target-benefit pension plan guarantees good protection during retirement because it ensures the payment of a life annuity. It also allows longevity and investments risk sharing between all plan members, that is, between workers and retirees.

Good predictability for employers

A target-benefit pension plan allows the employer to predict the contribution amount. However, the employer must ensure to pay contributions according to the provisions of the plan.

Retraite Québec's expertise at the heart of this progress

Retraite Québec was mandated by the Québec Minister of Finance to prepare a bill allowing the implementation of target-benefit pension plans. The bill was passed at the National Assembly last December.

Once again, Retraite Québec's expertise allows for significant progress regarding pension plans, and continues to contribute to the financial health of the Québec population in retirement by providing more possibilities to employers who want to offer their employees a pension plan.