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 retire-ment
income and they are willing to contribute meaningfully to
■■ 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 differenti-ator
for new talent or the main reason existing employees decide
to stay. A McKinsey Global Institute study predicts that attrac-tion
and retention will become more important in years to come
as, “employers in Europe and North America will require 16 mil-lion
to 18 million more college-educated workers in 2020 than are
going to be available.” With only one in 10 private sector work-places
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 man-agement.
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 ade-quate
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 pay-ments
or presentism by employees unable to retire with confidence
or maintain a reasonable standard of living.
MDB plans address employee financial stress and offer attrac-tion
and retention benefits to the HR professional, but how do
they align to a chief financial officer’s objectives? In short, per-fectly!
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 return-ing
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 bene-fit
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 ben-efit
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 – suggest-ing
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 sustain-able
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. n
Derek W. Dobson is the CEO and plan manager for CAAT
MDB PLANS DELIVER HIGHLY
DESIRED, PREDICTABLE AND SECURE
LIFETIME RETIREMENT INCOME.
pinkomelet / 123RF
40 ❚ NOVEMBER 2018 ❚ HR PROFESSIONAL