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Joe Hornyak
Former editor of Benefits and Pensions Monitor and founder of Joe Hornyak Communications
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Canada obsessed with single employer plans
Randy?Bauslaugh, of Bauslaugh Pensions & Benefits Law, wonders why there is an obsession with single-employer pension plans in Canada.
In a panel discussion on ‘What's this Obsession with Single Employer Pension Plans?’ at ‘CPBI Forum 2023’?with Lilach Frenkel,?director of product innovation at the CAAT Pension Plan; Dawn Marchand, president and CEO of Lawyers Financial; and Stefán Halldórsson, project manager for the Icelandic Pension Funds Association; he said there are 16,300 pension plans in Canada, but 60% of these have fewer than 10 members.
His other issue is why are employers running financial institutions along with their core businesses. Of the country’s 1.2 million employers, only 3,000 have more than 300 employees, yet only 10 per cent of Canadian workers in the private sector are in a retirement plan.
Among Canada’s largest pension plans, the common denominator is they are all multi-employer plans (MEPPs).
He suggested the country’s pension industry should be looking at Iceland which has been ranked the best pension plan system in the world for the past two years by the Mercer Global Pension Index.
Halldórsson said similar to Canada, the Icelandic system has three pillars ? social security, employer pension funds, and voluntary savings. Most retirees get an old age pension which is funded through taxes. However, it is also means tested and the higher a retiree’s income, the smaller their old age pension.
The second pillar ? collective occupational pensions ? was revised in 1997 and all pensions in the country became targeted defined contribution schemes. All defined benefit plans were closed to new members at the time. These new funds were industry wide as a general rule and membership was mandatory for everyone earning employment income from work. This includes the self-employed.
The total contribution is 15.5% with employees contributing 4%. “In principle, these cover 100% of workforce. No one gets away without contributing to a pension fund,” he said.
Today there are 21 funds with the 10 largest holding 89% of all assets which means they can use economies of scale to keep costs down. They also offer professional investment, administration, and organizational management.
Its number one ranking in the Mercer Global Pension Index is based on its generous benefits, coverage of all employees, and well-governed and regulated nature.
Frenkel said the CAAT Pension Plan has a lot in common with Iceland’s plans. However, “the key metrics of success that make Iceland so revered are the key challenges that we have in Canada and are looking to solve,” she said. These are coverage, leveraging economies of scale, and achieving resilience.
Canadian plans need to offer what employers want ? contribution stability and a tool for attraction and attention ? and what employees need ? a pension for life.
CAAT’s DBplus is able to leverage economies of scale so the expected payout for each dollar of contribution is much higher.
As well, its size means it has access to alternatives that offer higher returns with lower volatility.
Also important is “to have a framework that focuses on long-term sustainability, but has levers which can be pulled for short-term relief,” she said.
Marchand said her organization turned to the CAAT plan after looking into developing their own plan for lawyers. When it determined doing it alone would cost $10 million and take over eight years, it opted for CAAT and joined it in “less than a year.”
Bauslaugh noted other MEPPs like OPTrust are entering this space and opening up to outside organizations. As well, private sector firms are now offering their own products.
For details on these stories, visit www.bpmmagazine.com