The Observer

ARTICLES OF INTEREST

Listening to Stakeholders leads to successful innovation

by Derek Dobson, CAAT Pension Plan

Modern Defined Benefit (MDB) plans are innovating to offer better pension solutions to members and employers in the broader public, not-for-profit, and private sectors. This opens up thrilling new possibilities for our industry to grow coverage and increase retirement benefit security for more Canadians.
 
These developments are happening despite deeply rooted convictions that defined benefit pensions are past their prime. How did this happen and what can others learn from the introduction of new Modern DB plans?
 
Plan sponsors and administrators need regular and candid stakeholder engagement to test whether they hold stale assumptions about what people want and need from their plan and to understand broader perspectives on financial wellness. Stakeholders can help you uncover gaps that lead to new products, communications, or even new markets.
 
At the CAAT Pension Plan, we worked with our stakeholders over many years to develop a new Modern Defined Benefit pension plan design called DBplus. We heard from our members and employers that workplaces have changed in significant ways since the introduction of the CAAT Plan in 1967:

 
  • Part-time employment has increased meaningfully.
  • Task-based pay, rather than service-based pay, is on the rise.
  • Employees are retiring with less service.
  • Retail retirement savings options are expensive and more complex.
  • Stress about financial wellness, especially retirement, is more pronounced.

Our participating employers told us that they wanted a Modern Defined Benefit plan that would be easier to administer and communicate. We developed the new plan design to meet these needs. It focuses on maximizing members’ lifetime pensions and providing similar value per contribution dollar as the current CAAT Plan design. Key features include:
 
  • fixed contribution rate (matched by employers).
  • lifetime pension is based on the member’s annual T4 earnings, rather than earnings annualized over a five-year period.
  • secure lifetime pension, conditional inflation protection, and survivor benefits.

In addition, the 2016 national survey by the Canadian Public Policy Leadership Council (CPPLC) had demonstrated that Canadians have a desire and ability to pay for Modern DB pension plans. This online survey asked 1,000 working Canadians about their expectations, desires, and strategies for retirement. I had four key takeaways from the survey:
 
  • DB plans are relevant for Canadians across all age groups and income levels, who value the predictable, lifetime income provided by a DB pension plan.
  • Canadians are willing to contribute appropriately to pensions and retirement savings. The majority said they are willing to pay 10% or more, including those under 24 years of age and earning below $25,000.
  • Canadians need easy retirement plans because the survey showed that few spend time planning and most nearing retirement still do not have a plan. Fewer still want to manage an investment portfolio for many decades, including into their late 80s.
  • Multi-employer DB plans result in less stress for members and employers. This helps employees and employers through health cost savings, productivity, and engagement.

Over the past 6 years, we have spoken to representatives from approximately 75 employers representing a range of industries and sectors. Some wanted to fix their current defined benefit plan, some wanted to convert from defined contribution (DC), and others wanted cost-effective access to sustainable retirement options. These conversations reinforced my confidence in the relevance of Modern DB plans, today and in the future.
 
What we heard from employers is that they can afford contributions to a certain level but they cannot afford the unpredictable contributions, increasing costs, and complexity that plague traditional single employer defined benefit plans. In addition, we heard of the administrative and equity challenges that come with providing different plans for different groups of employees, for example, a closed DB plan and an ongoing DC plan. Other top concerns were:

 
  • Benefit security.
  • Addressing funding issues.
  • Focusing resources on the core business.
  • Freeing up capital to invest in jobs and technology.
 
Existing products, like defined contribution plans, fall short of member desires and also did not fully meet these employers’ objectives. While DC plans offer predictable contributions, they also come with their own complications:

  On October 1, 2018, our hypothesis that there was a larger market for a new Modern Defined Benefit plan design was confirmed when Torstar Corporation became the first employer to join CAAT under the DBplus plan design. This came after months of consultation with all Torstar stakeholders. Torstar defined benefit pension plan members voted 97% in favour to merge with the CAAT Plan. This overwhelming endorsement was similar to prior mergers from different sectors.
 
Our industry had generally assumed that employees and employers were not interested in defined benefit pension plans. However, listening to stakeholders revealed that employees and employers are very enthusiastic about DB plans that help them meet their objectives. They frankly told us that existing products were not meeting their needs. The innovative solution was Modern Defined Benefit plans, adapted for today’s workplace. These solutions will increase pension coverage in Canada and bring benefits we can all enjoy.

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  Derek Dobson
  Chief Executive Officer and Plan Manager
  CAAT Pension Plan






 
Derek has more than 25 years of experience in the pension industry. In addition to being the CEO of one of Canada’s best-performing pension plans, he serves as Co-Chair of the Canadian Public Pension Leadership Council (CPPLC) and sits on the Board of Directors of the Association of Canadian Pension Management (ACPM).

He is a frequent author and speaker on retirement income related topics. Derek is an Associate of the Canadian Institute of Actuaries (CIA) with a degree in mathematics from the University of Waterloo.