The federal government is proposing to create a new voluntary target benefit pension plan to help all Canadians save for their retirement, Minister of State for Finance Kevin Sorenson said in Toronto today.

The target benefit plan is "a new, innovative proposal that will help support affordable and sustainable pensions for Canadians," Sorenson said during a lunch speech at the Economic Club of Canada.

With this proposed plan, the government is seeking to reach a middle ground between those who say defined benefit pension plans are threatening the viability of companies, and those who say their predictability makes for seniors who are better off and a healthier society.

The target benefit plan would share the risks of volatile stock markets between employers and employees.

Should a company's pension plan run into trouble, it would not necessarily have to make up the shortfall, as is currently the law. 

Kevin Sorenson 20131216

Minister of State for Finance Kevin Sorenson announced Tuesday 'a new, innovative proposal that will help support affordable and sustainable pensions for Canadians.' (Adrian Wyld/The Canadian Press)

Instead, the company could move the "target" for the pension payout.

"The target benefit plan would be available to federally regulated private-sector and Crown corporation pension plans that are subject to regulation under the Pension Benefits Standards Act," Sorenson said.

The target benefit plan would not apply to the federal public service or to provincially regulated private pension plans.

"Pension benefits and contributions would adjust over time based on the financial performance of the plan," said Sorenson.

Unlike defined contribution plans, the target benefit pension plan would offer "a more predictable stream of benefit payments and high benefit security, since the target benefits would be based on a pre-determined formula."

"Members and retirees would benefit from the pooling of longevity risk," said Sorenson.

The minister cited the Association of Canadian Pension Management which supports the concept of the target benefit plan.

Sorenson quoted the group as saying, "We strongly urge governments to promptly take the necessary action to enable single employer target benefit plans to be offered up to Canadian workers, in an effort to further enhance the Canadian retirement income system.” 

CPP enhancement

Federal and provincial critics say they would have preferred to see the federal government enhance the Canadian Pension plan.

“What the Conservatives are proposing won’t help the millions of Canadians who will face a steep drop in their standard of living by retirement,” said NDP pensions critic Murray Rankin.

"Pension experts, labour unions, provincial governments, and seniors organizations all agree that the best way to tackle the looming crisis is to boost benefits through CPP/QPP," Rankin said in a written statement.

Ontario Finance Minister Charles Sousa said today's announcement fell short of expectations.

"We know that CPP enhancement is the right choice, and is critical to ensuring that Ontarians and Canadians, particularly today’s middle-income earners, have greater financial security in their retirement," Sousa said in a written statement.

Sousa said Ontario will continue to move forward with its own made-in-Ontario solution.

Sorenson said "an expansion of the Canada Pension Plan, at this time, would hurt families, reduce wages, deter business investment and eliminate jobs."

Canadians have 60 days to go online and let the government know what they think of the proposal.

With files from CBC's James Fitz-Morris