Target benefit pension plans require different investment

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Aon Hewitt Media Contact:
Rosa Damonte, 416-227-5718, rosa.damonte@aonhewitt.com
Alexandre Daudelin, 514-982-4910, alexandre.daudelin@aonhewitt.com
For immediate release
Target benefit pension plans require different investment policies,
says Aon Hewitt
Fourth guide to target benefit plans from leading retirement consulting firm focuses
on the role of investment policy in plan design
TORONTO, Ont., January 23, 2015 – The unique characteristics of target benefit pension plans mean that plan
sponsors need to develop and adopt unique investment policies, according to Aon Hewitt, the global talent,
retirement and health solutions business of Aon plc (NYSE:AON). One of the country’s leading retirement
consulting and actuarial firms, Aon Hewitt today released the fourth in a series of guides to target benefit pension
plans – a growing pension design that is increasingly being allowed by Canadian jurisdictions and adopted by
organizations across the country.
The guide, entitled “Investments for the Target Benefit Plan,” is an essential resource for organizations
considering initiating or changing their existing pension plan to a target benefit (TB) plan design, which builds in
flexibility for pension benefits so that the plan can pay lifetime pensions while remaining sustainable through
market fluctuations, economic circumstances and changing demographics. TB pension plans have unique
features that distinguish them from either defined benefit (DB) or defined contribution (DC) plans, including fixed
contributions, required reserve levels and targeted benefits that can be altered in response to overall plan health
and liabilities.
Nearly every jurisdiction in Canada has adopted or is considering regulatory reform allowing target benefit
designs to help employers and employees improve the sustainability of their pension plans. These reforms are
already having an impact. In Saskatchewan last year, for example, the Regina Police Service unveiled its new
Target Retirement Income Plan (TRIP), a landmark pension plan that all parties – the City of Regina, Regina
Police Service unionized staff, and the Regina Board of Police Commissioners – worked hard to develop over
several years, and which is designed to provide post-retirement income security to nearly 500 employees for
many years to come.
Aon Hewitt, a leading consulting firm providing insight and guidance to pension plan sponsors in both the private
and public sectors, is publishing a series of guides to help organizations understand target benefit plan structures
and how they work. The newly released guide leverages Aon Hewitt’s extensive experience and leadership in the
development and governance of target benefit plans, and examines the characteristics of these plans that impact
investments, in addition to describing the risks and objectives that should be addressed in the investment policy.
“Because of differences in plan structure, governance and maintenance, target benefit pension plans require
different investment policies than traditional DB plans,” said Troy Milnthorp, National Leader, Target Benefit Task
Force at Aon Hewitt. “We’ve produced this new guide to help plan participants better understand those
differences and develop a sound investment policy that can ensure a target benefit plan works for sponsors and
pensioners alike.”
The guide also offers concrete suggestions for the establishment of the plan’s investment policy, including
considerations for asset-liability modeling and for adopting a dynamic approach to managing plan assets.
"The investment strategy of a target benefit plan needs to take into account not just traditional risk management,
but also the characteristic benefit and funding policies of the TB design,” added Milnthorp. “It needs to
Risk. Reinsurance. Human Resources.
accommodate a number of possibilities, such as contributions exceeding expected costs, as well as reserve
levels and how any excess funds are treated.”
The guide is available 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.
About Aon
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 66,000 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, best reinsurance intermediary, best captives manager,
and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on
Aon and aon.com/manchesterunited to learn about Aon’s global partnership with Manchester United.
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