Survey of Pension Plans in Canada
Summary
Phased retirement set to drive structuring of retirement benefits
With nearly nine of every 10 employers countrywide reporting a shortage in skilled labour, a
growing number of companies are looking to phased retirement arrangements and the realigning
of their compensation policies and pension plans. This is one of the key findings revealed in the
Survey of Pension Plans in Canada, sponsored by FEI Canada and Aon Consulting.
While just 4% of the companies surveyed already have some form of phased retirement
arrangement in place, almost one in three (32%) of the respondents intended to introduce such a
program over the next three years. Increasingly, keeping current workers working longer is seen
as a solution to workforce shortages.
Sparked by concerns for what a retiring “baby boomer” generation (those born between 1947 and
1966, accounting for about 33% of the Canadian population) would mean to the country’s labour
resource as well as cost to public social security programs, the federal government recently
amended the Income Tax Act (ITA) to allow employees to receive up to 60% of their full pensions
(and continue to accrue benefits under the pension plan) whilst continuing to work part-time on a
regular basis. Most of the survey respondents (83%) said they would permit their employees to
benefit from the phased retirement changes to the ITA, which came into effect from the beginning
of 2008.
However, several of the provinces' current pension legislation conflict with the new income tax
rules, thus national employers will achieve only partial benefit from the ITA’s phased retirement
allowance. Employers would also have to review existing provisions of their pension plans to
accommodate phased retirement arrangements.
Results of the Survey of Pension Plans in Canada, undertaken in 2007, are based on 61 plansponsors countrywide representing 63 defined benefit (DB) plans and 58 defined contribution
(DC) plans. Approximately 28% of the DB plans are regulated under the Federal Pension Benefits
Standards Act (PBSA) with about 10% of DC plans federally regulated. Over half of the
participating employers/plan-sponsors engaged with at least one collective bargain group
(employee trade union).
A significant number of the survey’s respondents (45%) expressed an interest in adopting
alternative pension plan structures to the existing DB and DC-type plans. Their desire would be to
achieve a risk sharing intermediate between the current DB and DC plans. Understandably, many
of the respondents would want to know more detail about such alternative plan structures before
committing.
The trend by Canadian plan-sponsors to convert from DB to DC plans appears to be abating,
according to the survey’s results. Almost three-quarters (74%) of respondents do not expect to
convert from a DB to DC plan. The prime reason given by 60% of respondents is that they have a
“DB philosophy”. Notably, nearly a third of employers (30%) believe a DB plan is necessary to
attract and retain employees while 40% of the respondents noted that a DC plan would be
inconsistent with their industry.
Alarmingly, one in five DC plan-sponsors say they have not been active in governance and either
do not comply with the CAP Guidelines or have not checked whether they do. A further 16.7% of
the respondents said they have allocated governance roles and responsibilities for their DC
retirement plans, which are CAP-compliant, but that they have no documented process for
monitoring these responsibilities. The CAP Guidelines were introduced in 2004 by the Joint
Forum of Financial Market Regulators. Although the guidelines are voluntary, DC plan-sponsors
were expected to operate in compliance with the reporting, member communication and
appropriate investment options set out in the CAP Guidelines by the beginning of 2006.
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Survey of Pension Plans in Canada
Summary
In line with the CAP Guidelines, the survey shows an increased interest by DC plan sponsors to
provide retirement planning assistance to members. Almost two-thirds (63.6%) of respondents
provide some retirement or financial planning education to their employees. Close to half (45%) of
those that provide such education introduced it within the past three years. Those organizations
without education programs (38.1%) intended to implement them within the next three years.
Only 5.3% of the respondents reported not being happy with the effectiveness of their education
programs. Nearly all of the respondents (90%) share concern over the capability of their DC plan
members to manage their plan investments while employed, while 55% worried about members'
ability to manage their funds after employment.
Almost 38% of the respondents said they are somewhat concerned regarding potential conflict of
interest among consultants and service providers operating in the Canadian pension
marketplace. Notably, more than two-thirds (68%) of the respondents indicated that they were at
least somewhat unsatisfied with the pension regulatory environment – citing lack of uniformity in
rules across the country, uncertainty regarding legal risks and the current solvency funding rules
and maximum funding limits set out in the ITA.
Many employers (59%) believed that non-pension benefits provided to retirees are currently not a
problem, while a further 26% indicated they are only somewhat of a problem. Organizations with
the greatest concerns about non-pension benefits are typically those that provide benefits under a
collective bargaining agreement (trade union negotiated).
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