Jana Steele, Ian McSweeney, Barry Gros and Karen Hall recently co-authored the C.D. Howe Paper, The Taxation of Single-Employer Target Benefit Plans – Where We Are and Where We Ought To Be.  The paper offers a blueprint of how tax rules can be changed to better accommodate single-employer target benefit plans (TBPs).

Many employers have been looking for alternatives beyond traditional pension arrangements to better manage their pension risks. TBPs are an attractive hybrid of traditional defined-benefit and defined-contribution plans since they combine fixed contributions with targeted pension payments.  (For more information on TBPs, see our series the ABC’s of TBPs, Part I,Part II and Part III.)

Policymakers and regulators across the country are making the required changes to pension standards legislation that would recognize single-employer TBPs.  Yet the current tax regime does not accommodate alternative pension plan designs such as single-employer TBPs. There is a clear need for more certainty about the tax treatment of these plans.

The paper concludes by encouraging the federal government to amend the Income Tax Act to address the evolving Canadian pension landscape and implement the changes required to accompany these TBP reforms.