Redefining de-risking
CAAT Pension Plan
CAAT Pension Plan provides workplaces across Canada with lifetime retirement income plans for employees.
Traditionally, when we think of de-risking pension plans, a handful of options come to mind: a shift to Liability-Driven Investments (LDI), annuity buy-ins or buy-outs for inactive plan members (i.e., retired and deferred vested members), lump sum windows, and wind-ups.
Employers now have an additional de-risking option in their toolbox, one in which they can offer employees a secure, lifetime pension while managing the risk of pension accruals: joining a modern defined benefit (“DB”) plan such as DBplus offered by the CAAT Pension Plan (“CAAT”).
CAAT’s DBplus is designed to help employees and employers meet their goals and objectives. DBplus offers the benefits employees want – secure, predictable, lifetime retirement income – and the reduced risk, time, and costs employers need to focus on their core operations. This is why we continue to see more employers joining DBplus. Employers joining DBplus with an existing DB plan can choose to merge existing assets into CAAT or wind up the existing plan.
Merging prior DB benefits into the CAAT Pension Plan
Prior plan benefits that merge into CAAT are replicated and backed by CAAT. Where possible, the benefits may also receive CAAT’s conditional inflationary increases, a valuable benefit enhancement, especially in times of high inflation as in current market conditions.
Unlike in a plan wind-up, where the position is crystallized at the tail end of the process, pricing is determined prior to the employer deciding to merge with CAAT. This would also include a potential strategy to address a shortfall, should any exist. This allows the employer to make an informed decision to merge.
CAAT works closely with employers and their trusted advisors throughout various stages of the merger process, including:
Once the merger is complete and all assets and liabilities have been transferred to CAAT, the employer ceases to be responsible for the payment of past benefits and any governance and compliance requirements associated with the single employer DB plan. CAAT will assume pension management responsibilities and fiduciary duty associated with plan administration.
The key stages of a DB plan merger into CAAT are shown below.
Winding up prior DB benefits
Under a plan wind-up, all prior DB pension benefits are fully settled via either a lump sum payment or the purchase of an annuity from an insurance company, based on member elections and in accordance with legislation.
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Similar to a DB plan merger, the wind-up process typically takes 1.5 to 2 years to complete, although the final plan wind-up position and deficit, if any, would be finalized long after the wind-up has already been declared. The plan wind-up position would crystallize only once all regulatory approvals have been granted, member elections have all been received, and the annuity premium is known.
Upon completion of a plan wind-up, the employer will no longer have various fees associated with maintaining a single employer DB plan. The plan, along with its related responsibilities including governance and compliance, will cease to exist.
The key steps of a DB plan wind-up are shown below.
Employer considerations
The table below outlines considerations when looking to de-risk prior plan DB benefits.
The CAAT advantage
CAAT’s innovative DBplus design provides employers a sustainable de-risking solution for future pension accruals and prior DB plan benefits.
CAAT provides an all-encompassing solution to employers by taking on compliance duties, fiduciary responsibilities, administration, member education, and plan communication.
By joining CAAT’s DBplus, employees can look forward to peace of mind in retirement, knowing that their lifetime retirement income is backed by one of Canada’s most sustainable, highest-performing, and fastest-growing plans.
Want to know more?
To learn more about how CAAT’s DBplus plan design can meet the needs of your organization, contact us at [email protected] .