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Modern Defined Benefit pensions can substantially improve outcomes for businesses

By Derek W. Dobson


Anxiety about an uncertain financial future in retirement can lead to missed days of work and reduced productivity.

In a global survey, Willis Towers Watson found that employees with financial worries report worse health, higher stress, more absences and lower engagement levels than did employees without financial concerns.

Contributing to the financial wellness of employees has been a challenge for employers for decades. The main choices that were available (such as traditional Defined Benefit or Defined Contribution plans) pushed major risks and costs onto either the employee or the employer.

Fortunately, the expanded availability of Modern Defined Benefit (MDB) pension plans provides an elegant and cost-effective solution to all workplaces in Canada. These innovations meet the most important objectives of both employees and employers – secure, efficient, risk-managed pension plans with stable and affordable contributions and no accounting risks.

Jointly sponsored multi-employer MDB pension plans are independently administered and governed, removing all pension risks from the employer. Employers simply match employee contributions; that’s it!

With MDB, employers are not responsible for day-to-day administration of the plan or the risks that come with traditional pension plans. These plans operate and invest efficiently to provide a higher lifetime pension at a lower risk and cost than other retirement savings vehicles. In other words, more benefits per contributed dollar. At the same time, they charge no extra cost or effort for running a pension plan.

MDB plans address the core needs of an organization’s stakeholders:

  • They tackle employee financial stress, which can be a drag on productivity and engagement and can result in higher benefit costs.
  • They act as a valuable attraction and retention benefit, meeting a key need of human resources professionals in a tightening job market. They also better manage presentism by giving employees the confidence to retire when the time is right.
  • They operate efficiently and without cost volatility to align with the objectives of chief financial officers. Savings from the conversion of current pension programs can be reinvested in the business and jobs.


Improving business outcomes

As noted earlier, an employee’s personal financial anxiety can negatively affect the bottom line. Multiple surveys confirm that Canadians are stressed about retirement (and many should be). In September 2018, the Canadian Payroll Association reported that:

  • Forty-six per cent of Canadians said financial stress is impacting their workplace performance.
  • Seventy-two per cent said they have only saved a quarter or less of what they feel they will need to retire.


A nearly 75 per cent savings gap does not bode well for workplace productivity and a 2016 survey of Canadian attitudes toward retirement bears this out. The Canadian Public Pension Leadership Council (CPPLC) found that over half of all Canadians (51 per cent) said that retirement-planning stress has a medium-to-high impact on their work. In addition, employees who have to manage their retirement account are more likely to see stress affect their work:

  • Sixty-nine per cent of group RRSP members said retirement-planning stress impacted their work.
  • Forty-nine per cent of Defined Contribution (DC) plan members said retirement-planning stress impacted their work.


MDB plans deliver highly desired, predictable and secure lifetime retirement income. Members are not required to make investment decisions, decide how to time their retirement to the market cycle or decide how to withdraw their savings in retirement. With fewer decisions, plan members are less stressed.

MDB plans also support the needs of HR professionals as they search for new talent and look to reduce training and recruitment costs by retaining existing employees. A 2012 McKinsey & Company survey found that there is an 800 per cent productivity gap between average performing employees and high performing employees in very high complexity work. It is imperative to attract and retain high performers to succeed.

Canadians want the features typically found in MDB plans. The CPPLC survey found that the majority of Canadians, across all ages and income levels, want predictable, lifetime retirement income and they are willing to contribute meaningfully to achieve it:

  • Ninety-seven per cent of the survey respondents said that a predictable retirement income was desirable.
  • Over 70 per cent said that they were willing to pay five per cent or more of their income for these benefits.
  • Other case studies validate these survey findings and show that employees are willing to pay 10 per cent or more of their salary to participate in a Modern Defined Benefit pension plan.


When talent is in short supply, MDB could be the differentiator for new talent or the main reason existing employees decide to stay. A McKinsey Global Institute study predicts that attraction and retention will become more important in years to come as, “employers in Europe and North America will require 16 million to 18 million more college-educated workers in 2020 than are going to be available.” With only one in 10 private sector workplaces offering a Defined Benefit (DB) pension, providing a more cost-effective MDB plan can be the key differentiator to attract employees from all age groups, without putting the organization’s finances at risk.

MDB plans also help the HR department with workforce management. Employees with DB pensions are more confident about retiring than those who participate in other types of retirement plans. The CPPLC study found that DB plan members were the most likely to have a written retirement plan even though they are the least in need of one because they cannot outlive their pension:

  • Only 16 per cent of group RRSP members said they have a written plan (and they are most in need of a plan).
  • Only 21 per cent of Defined Contribution (DC) plan members said they have a written plan (and they are more in need of plan).


MDB pension plans require regular employee and matching employer contributions over the employee’s career to fund an adequate retirement income. This structure ensures their long-term retirement goals are met when the time is right to retire. For the HR professional, this helps minimize more costly severance payments or presentism by employees unable to retire with confidence or maintain a reasonable standard of living.

MDB plans address employee financial stress and offer attraction and retention benefits to the HR professional, but how do they align to a chief financial officer’s objectives? In short, perfectly! Employers simply expense contributions such as normal pay. Also significant to CFOs, MDB is structured, meaning there is no pension liability recorded on an employer’s books. Employers simply match employee contributions. There is no balance sheet risk and contributions rates are fixed.

Are MDB better than DC plans? Most MDB plans are jointly-sponsored multi-employer plans. Multi-employer plans are more efficient than individual DC plans because they pool longevity and investment risks, they are invested in broader and higher returning asset categories and they have lower investment fees. They are independently administered with low operating costs. This means that more of the contributions made go to pension benefits, not overhead. This should be the goal of every workplace benefit program.

Robert L. Brown, Professor Emeritus of the University of Waterloo (Actuarial Science and director of the Institute of Insurance and Pension Research), has written that defined benefit plans are, “the most efficient and effective means of delivering retirement income.” He notes that a 2011 Texas study found that 92 per cent of its defined benefit members would do worse in a DC plan, with two-thirds receiving substantially less. In Canada, MDB plans perform better and mutual fund fees are higher – suggesting that MDB would have an even better advantage for Canadians.

The recent expanded availability of MDB pension plans means that more workplaces can meet the needs of their employees, HR departments and CFOs with a valuable, attractive and sustainable pension plan at fixed costs and without the risks of traditional pension plans. Addressing employee financial stress, attraction and retention issues and CFO concerns via a Modern Defined Benefits pension plan can substantially improve outcomes.

Derek W. Dobson is the CEO and plan manager for CAAT Pension Plan.




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