New Brunswick amends Pension Benefits Act
On May 31, New Brunswick introduced Bill 63, An Act to Amend the Pension Benefits Act, which establishes an optional new program structure available to pension plans registered in New Brunswick. This legislation represents the culmination of the work of the Pension Task Force, appointed in December 2010 to review pensions in New Brunswick, and has the objective of improving the security, sustainability and affordability of the pension system.
Most importantly, this legislation introduces Shared Risk Pension Plans (“SRPs”). SRPs are a unique take on the traditional defined benefit pension plan. In short, an SRP provides a modest initial benefit promise based on career average earnings and no post-retirement indexation but is funded at a level where future surpluses are expected to be adequate to pay for substantial inflation adjustments for plan members both before and after retirement. A portion of surpluses generated must be used to enhance benefits for all plan members through inflation adjustments and the balance held in reserve to protect the long term security of the program. Contribution holidays are not allowed unless mandated by the Income Tax Act. The contribution rate, benefit level, investment strategy and related aspects of plan operations are subject to a stringent risk management process, including annual valuations. This approach is targeted to achieve the consistency in contribution rates that many plan sponsors find attractive in defined contribution programs while maintaining the high level of benefit security that employee groups typically value in more traditional defined benefit programs.
For more information, please consult our Special Communiqué, available on our website.