CEO of the Alberta Carpenters and Allied Workers Trust Funds on flexible PfAD models for stronger pension plans
Having transitioned from plan administration to regulation to consulting and back to plan administration as CEO of the Alberta Carpenters and Allied Workers Trust Funds, Paul Owens has seen everything the Canadian pension landscape has to offer. Speaking to BPM, he says that changes in regulations means that leaders need to keep their eye on the ball – or risk being left behind.
“I think the advantage that I bring to the table is I've seen the pension industry from all aspects," he explains. “Asset management, liability, governance, and administration.”
This variety of experience has also shaped Owens’ own strategies – especially when it comes to the principle-based regulatory regimes in Alberta and British Columbia versus the more rigid, transaction-focused approaches seen elsewhere.
"Some regulators see their role as being a pension cop," he tells BPM, explaining how such strict oversight can stifle the viability of private sector defined benefit plans. This stringent regulatory approach has contributed to the decline of these plans in Canada – for Owens, he advocates for a balanced regulatory environment that supports pension plans without imposing excessive constraints.
One of the significant improvements Owens highlighted is the introduction of solvency reserve accounts in Alberta and BC. These accounts addressed the issue of employers contributing only the absolute minimum to avoid over-contributing.
“Having a solvency reserve account was a great legislative breakthrough," Owens adds.
Interest rates and market conditions are perennial challenges in pension plan management. Owens discussed the impact of interest rate fluctuations on the Provision for Adverse Deviation (PfAD) on Collectively Bargained Multi-Employer Plans CBMEPs).
"We were forcing plans to put in excessive margins," he explains, referring to the period when interest rates plummeted, causing the PfAD to skyrocket. This led to unsustainable funding requirements for pension plans.
To address these challenges, Alberta recently amended its regulations to adopt a PfAD model similar to British Columbia's.
“Alberta has just amended their Regulations to go to the model that BC adopted, which is a much more appropriate PfAD construction," Owens adds. This model bases the PfAD on a fixed percentage with additional amounts determined by the plan”s board of trustees in consultation with their actuaries.
Owens also emphasized the importance of determining the appropriate funding margins for pension plans.
"The problem we've always had in the pension plan space is trying to determine what is the appropriate margin that needs to be built into a pension plan," he says. This involves balancing between conservative and aggressive funding policies to ensure plans remain resilient through varying economic cycles.
"We've seen interest rates or discount rates go up, which has improved their funded ratio," he notes.
Governance is a critical area, foundational to the success of pension plans.
"The basic problem with pension plans is governance," he explains. “Effective governance involves having a knowledgeable board that understands the complexities of assets, liabilities, administration, and funding policies.”
Owens suggests that legislators could play a more active role in ensuring trustees possess or quickly acquire the necessary skills, with processes in place to address deficiencies.
"You need to have a board that has people who bring to the table expertise in those areas," he says. “You don't learn this stuff in your first three-year term.”
Trustees often spend their initial term in a learning mode, the second term in application, and the third term applying their knowledge effectively. This lengthy process underscores the need for continuous education and skill development among board members to ensure effective governance.
Throughout all the regulatory changes, Owens has always maintained a philosophy of proactive, solution-oriented management focused on serving pension plan members. His diverse experience across various roles in the pension industry equips him with a comprehensive perspective, allowing him to advocate for reforms that enhance stability and fairness.
“What we are trying to do is organize our work so that we service members. In other words, they are our clients," he says.
Owens also addressed the complexities of managing large pension plans, integrating investment, liabilities, systems, and governance into a cohesive, low-cost, value-added operation. He believes that defined benefit plans are superior for spreading mortality and investment risk, as opposed to defined contribution plans which function more like savings plans.
"Defined benefit plans are a better vehicle for spreading mortality and investment risk," he adds. “I have a bias in favor of what we call target benefit plans. I support this concept because it introduces the concept of risk sharing between the plan sponsor and the plan member with the objective that the benefit level is prudently set and is sustainable over the long term and is only adjusted downwards in the worst case scenario. When I was the regulator in Alberta, all but one of my CBMEPs converted to target benefit funding and none had to reduce accrued benefits over the last 10 years. This proved to me that the benefit levels were prudently set.”
