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“Studies we have done with peer plans across Canada show that the average Canadian is in the 10-to-12 per cent (contribution) comfort range. That’s the level they are willing to contribute to get their (retirement) goals … and we are right in that sweet spot.” – Derek Dobson

 

Derek Dobson

Derek Dobson

Canadians, according to research, want the kind of retirement security provided by a defined benefit pension plan, and they are willing to pay for it.
Employers also enjoy the benefits of a defined benefit pension through the recruitment and retention value the model provides. And the stable income delivered to retirees contributes to the economic health of communities, as DB pensioners remain consumers and taxpayers.
Despite these proven benefits, employers, mostly in the private sector, have been moving away from pensions for decades, usually switching to defined contribution schemes or not offering any type of occupational retirement plan at all. Recent data shows that as many as 65 per cent of Canadians don’t have access to a workplace pension.
It’s a conundrum, a problem in search of a solution.
The folks at the CAAT Pension Plan believe they have an answer that addresses employer concerns over the commitments of offering employees the DB value, and the desire of Canadians for retirement income security. It involves opening the door to more employers, including those in the private sector, to the CAAT plan.
“We think it’s a very good solution that balances what employers and members are trying to get out of a pension plan,” Derek Dobson, CEO and Plan Manager, told ARIA during a recent conversation.
The plan is coming off a couple of successful mergers with employers outside its traditional scope, post-secondary education. The Royal Ontario Museum (ROM) and Ottawa’s Youth Services Bureau (YSB) are now members of the multi-employer, jointly sponsored CAAT. The mergers received 97 per cent support from ROM plan members, and 99.6 per cent backing from YSB members.
The overwhelming support for the mergers, even with increased contributions to reach CAAT levels, supports research that says Canadians want DB, and are willing to pay for it, says Dobson.
“Studies we have done with peer plans across Canada show that the average Canadian is in the 10-to-12 per cent (contribution) comfort range. That’s the level they are willing to contribute to get their (retirement) goals … and we are right in that sweet spot.
“We had a lot of doubters … but now we have shown with 99.6 per cent consent at YSB and the 97 per cent consent at ROM, it’s true” Canadians value and want the retirement security of a DB pension plan.
CAAT was formed in 1967, with the creation of the Ontario college system. Today, the employees of 41 employers are part of the system, with more than 46,000 members. The core of employers are in education-related sectors, but the ROM and YSB mergers may be “the tip of the iceberg” when it comes to managing the pension requirements of private sector employers and employees, says Dobson.
Over the past year, CAAT has been in discussion with several organizations regarding the management of their pensions, says Dobson, who adds “we have interest at the due diligence level from six right now, and in early discussions with eight … so there is definitely a lot of interest.”
Torstar is one company expressing interest in merging its DB plans with CAAT, indicating so in its 2017 fourth quarter results. This direction, says Dobson, represents the “future of mergers.”
The strategy of opening the plan to new members as an answer to issues such as plan maturity and sustainability and promoting DB as a solution to inadequate retirement income and coverage, had been under discussion at CAAT for some time, but the catalyst, says Dobson, for “accelerating the thinking” was the 2012 Don Drummond report: Commission on the Reform of Ontario’s Public Services.
Structured to review government spending and offer recommendations, Drummond suggested consolidating the pension plans of Ontario’s universities and colleges under a single administrator. Although that vision hasn’t materialized, CAAT “saw it both as a wakeup call and an opportunity to see where we could add value,” says Dobson.
ROM had once been part of the University of Toronto’s pension plan, and with that foot in the door” of the education sector, approached CAAT about a possible merger, he continues.
“They had been working to figure out what they could do from a pension sustainability perspective, and they were exploring two options: significantly reducing their DB features … or converting to a DC plan.”
Consultations and presentations began, ending with the subsequent merger, but a significant hurdle had to be overcome: agreeing to CAAT’s contribution levels (over a phased-in period) and 50/50 cost sharing between employers and employees.
To move forward, the merger needed the support of two-thirds of active members, and if members forgot or declined to vote, that counted as a no. “At the end of the day, we had 97 per cent approval for joining the plan … three per cent didn’t vote and we didn’t record a single no vote.”
CAAT’s structure allows private, non-profit organizations in Canada to join the plan on a going-forward basis, including DC-type schemes and group RRSPs. They and DB plans in the broader public sector have an “open door” to CAAT, but legacy private sector plans require government input.
“I think the government understood that this solution would be good for many employers, but they just wanted to assess them on a case-by-case basis … we do need a very small regulation to designate any private sector plan if they have legacy DB benefits,” says Dobson.
It all amounts to a win/win/win situation, he adds. Employers get the recruitment/retention value of a DB pension without having to administer it, members receive the benefits of a traditional pension, and the provider, CAAT, adds new members.
The plan, however, does have a couple of rules: it won’t take on merger debt and any merger has to at least “do no harm.” That being said, benefits for the plan include protection against plan maturity risk, a positive impact on existing members’ security through the addition of new members, and a bigger platform for DB advocacy.
So far, the promotion of the merger option has been organic in nature, but word is spreading. That could pick up if larger, more recognizable, private sector organizations look to merge with CAAT, says Dobson.
The plan, he continues, is also in the initial stage of launching a new pension design called DBplus, structured for a workforce of “more precarious employment, more part-time work.” It’s a DB plan but with a lower contribution rate of between six and nine per cent.
“Even though we aren’t launching it until June 1, we already have requests for presentations and it’s already being introduced at bargaining tables. We think this is a real game changer in the retirement income security space.”
With retirement insecurity being a real and present concern in Canada, and elsewhere, the search for solutions is ongoing. When it comes to CAAT’s strategy of opening its doors to mergers, Dobson says people with a “massive amount of industry experience” refer to the approach as “an elegant solution to Canada’s retirement income security problems.”

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