“Secure, predictable, pensions for life”—Something that was, until recently, only accorded to civil servants and those few in the private sector with a defined benefit (DB) pension plan is now on offer to all working Canadians through two new pension plan programs: DBplus and OPTrust.
DBplus Pension Plans
What Is DBplus?
DBplus is a defined benefit pension plan now on offer to all working Canadians through the College of Applied Arts and Technology (CAAT) Pension Plan.
Who Is Eligible for DBplus?
DBplus is now available to the not-for-profit and broader public sectors as well as to private sector companies with no workplace pension or those that are looking to reduce risk and liability by transitioning their existing single employer DB plan, defined contribution (DC) or group Registered Retirement Savings Plan (RRSP) arrangement to a well-managed, multi-employer DB pension plan.
DBplus operates as a second plan design within CAAT, coming under CAAT’s joint governance structure, investment strategy, $10.8 billion fund and 118% funded status. Under DBplus, employers and employees establish a fixed contribution rate from 5% to 9% of pay. DBplus is like a DC pension plan for employers with fixed contribution rates, and it provides lifetime benefits, survivor benefits and inflation protection for members. Annual wage adjustments and inflation protection are dependent on the funding status of the plan. According to Derek Dobson, CEO and plan manager, the CAAT Pension Plan has a 97% probability of remaining fully funded in 20 years. For single employers with a traditional DB plan that want to transfer pension management risk and want predictable and stable contribution rates as well as the elimination of fees, Dobson notes this is a good deal. For private sector employees with no workplace pension plan or a DC or group RRSP, it’s an even better deal, according to Dobson. DBplus promises to provide stable, predictable, lifetime retirement income that cannot be lost or reduced in the event of bankruptcy or restructuring.
OPTrust Pension Plans
What Is OPTrust Select?
In April of this year, OPTrust introduced a new DB option for not-for-profit and broader public sector workers in Ontario—”OPTrust Select.”
Who Is Eligible for OPTrust Select?
Everything from arts and cultural organizations, day cares, sports associations and recreation facilities to health and social service providers are encouraged to join OPTrust Select. Participants need not be members of OPSEU, and both full-time and part-time employees are eligible to participate. In September 2018, OPTrust Select received the endorsement of the Ontario Nonprofit Network as the “pension fund choice” for nonprofits.
How Is OpTrust Select Funded?
Under OPTrust Select, employees and employers each contribute 3% of pay. The benefit formula is 0.6% times upgraded career average earnings times pensionable service. Career average earnings base upgrades as well as inflation protection are dependent on the existence of plan surplus and board approval. Both benefit enhancements and inflation protection are prefunded. The benefit is a lifetime only, normal form of pension with no cross-subsidization for early retirement and bridge benefits. The plan is portable, so employees who change jobs to another Ontario nonprofit will be able to bring their pension with them. Employees are also able to buy back past service depending on the terms of their employer agreement. And members have peace of mind knowing that under the JSPP, MEPP OPTrust model, accrued benefits cannot be reduced (unlike in a target benefit pension plan).
As with CAAT’s DBplus, OPTrust Select offers retirement security to plan members while significantly reducing employer risk and pension expense volatility. There is minimal administrative burden for the employers, since all aspects of the plan are managed by OPTrust, which currently oversees over $20 billion in assets on behalf of more than 92,000 members and retirees. At 35 basis points, administrative costs are kept to a minimum, and employers can take advantage of OPTrust’s in-house professional expertise investments, diversity in asset mix, and legal, actuarial and communications support.
Related Reading: Four Trends Impacting Employee Benefits in Canada
What’s Next for DB Plans?
These are exciting times in the DB pension industry. It’s been a long time since we’ve seen any innovation with respect to DB plan design, let alone any new DB plans. In addition to CAAT and OPTrust, there is also Common Wealth, which offers a registered tax-free savings account (TFSA) aimed at retirement savings. They too are looking to create a portable retirement savings for Canada’s not-for-profit sector, following its successful launch of My65+, a retirement savings plan for low-income workers in the health care sector in partnership with the Service Employees International Union.
It is said that DB plans offer the most efficient way of ensuring retirement income adequacy and security. Proponents contest that ensuring access to DB plans for all working Canadians is the best way of guaranteeing the future viability of existing public plans and our standard of living.
Want to Learn More About DBplus and OPTrust?
For more information on CAAT’s DBplus pension and OPTrust’s OPTrust Select plan, listen to the on-demand webcast New, Innovative DB Pension Plan Offering for Everyone—CAAT DBplus and OPTrust Select with speakers Julie Belair, director of Actuarial Services, OPTrust and Derek Dobson, CEO and plan manager, CAAT Pension Plan.
Cara MacDonald, CEBS, CEBS-Compliant, ISCEBS Fellow
Regional Director – Canada