TORONTO, ON--(Marketwired - April 28, 2014) - The federal government's launch of discussions on a framework for Target Benefit Plans for federally regulated pensions highlights the potential of the Target Benefit approach to meet the changing needs of private- and public-sector plan sponsors and participants, says Aon Hewitt, the global human resources business of Aon plc (NYSE: AON). Announced on April 24, the federal consultation process means that almost every jurisdiction in Canada is now at least considering regulatory reform to allow for Target Benefit Plans -- an important step in providing pension stakeholders across the country with more flexibility to ensure long-term sustainability of their plans.
The Target Benefit approach is similar to the Defined Contribution model in that it involves fixed contributions, or a fixed range of contributions, which are set independently of the funded position of the plan. Benefits are based on affordability projections, and are directly linked to contributions in a way that does not currently exist in traditional Defined Benefit or Defined Contribution plans. While gaining in popularity, the adoption of Target Benefit Plans has been affected by complex pension rules that differ by jurisdiction. However, the jurisdictional scenario is changing; New Brunswick, Quebec, British Columbia and Alberta already have or are widely expected to adopt regulations governing Target Benefit plans, and other provinces have been actively assessing the regulatory reform. While the federal government proposal would directly impact only federally-regulated employers and there is no indication as to when or whether legislation might be introduced following the 60-day consultation period, the fact remains that the proposal brings Target Benefit Plans one step closer to reality across the country.
"For some plan sponsors and members, the Target Benefit approach has significant potential to provide good lifetime incomes for Canadians and to address the shortcomings of Defined Benefit and Defined Contribution designs," said William da Silva, Senior Partner, Retirement Practice, Aon Hewitt. "While we don't think that the approach is for everyone, we do believe that all pension stakeholders should at least understand it, as there are elements in Target Benefit design that can be used to improve the sustainability of any type of pension plan."
"The Target Benefit approach offers alternatives to plan sponsors who may be considering a move to Defined Contribution as they struggle with the affordability of their Defined Benefit Plans. It also provides options for Defined Contribution Plan members who have limited visibility on the retirement income their savings will provide, as well as limited ability to turn savings into a lifetime pension," says Karen Hall, Aon Hewitt Associate Partner and Chair of the firm's National Target Benefit Task Force. "The Target Benefit approach can also provide all plan stakeholders with greater insight into their plans' ability to balance pension contributions with benefits."
Aon Hewitt has established itself as a Canadian leader in Target Benefit Plan design, assisting clients across the country in implementing and maintaining this pension approach, as well as publishing a series of Guides to Target Benefit plans and creating an information-sharing website that provides relevant news, in-depth analysis, status updates on legislation, and more. Further information can be found at www.targetbenefits.ca.
About Aon Hewitt
Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit www.aonhewitt.com.
Aon plc (NYSE: AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 65,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.
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