DBplus: the right thing to do

The CAAT Pension Plan is on a mission to enhance the financial security of Canadians in retirement. Derek Dobson, the plan’s CEO and Plan Manager, says this is the motive behind the creation of its DBplus product which provides a secure lifetime pension for members and a fixed cost for plan sponsors.

And the message is getting traction across the country as more than 250 employers have opted into DBplus since its creation in 2019, bringing the plan to 80,000 members and $18 billion in assets.

You are promoting DBplus as a pension plan that brings together the best of defined contribution and defined benefit. How did it originate?

Dobson: The concept of DBplus came from listening to employers and member groups, and consulting with stakeholders ‒ boards, sponsor committees, actuaries, lawyers, plan members, and, ultimately, regulators to really make sure we could fit it within the existing regulatory framework. Our focus is on long-term sustainability and to be sustainable you need relevance for both employers and members.

Traditional DB is tilted to the member, whereas traditional DC is tilted to the employer. So we said let’s design something that works for both. We knew employers wanted fixed costs and simple accounting, and members are not investment experts, but they want predictable and secure lifetime income in retirement. We also know members need more retirement income and DBplus is expected to deliver twice the income compared to DC and RRSPs. So we designed DBplus around these main needs. Then we added a risk framework and funding policy around the DBplus design to ensure sustainability.

Besides providing a solution to the retirement savings industry for Canadian employers and employees, was there any other motivation for CAAT to create it?

Dobson: To get to our fiduciary duty, it’s also good for the health of the Plan as it diversifies our membership across more than the Ontario college sector. Diversification has huge benefits from a risk mitigation perspective. It gives us a broader population and larger asset base which allows us to get lower investment fees and diversify our asset mix even more than we would have or earlier than we would have. From an economies of scale perspective, it allows us to invest in better technology, for example, for enhanced member and employer services.

So it’s not only the right thing to do from a social perspective, but it was a good decision in terms of plan health.

The newest feature is ‘Contribution Choice.’ What is it?

Dobson: To get back to our purpose, our pur- pose is pretty clear. It is to enhance the financial security of Canadians. However, our vision is to be the workplace pension plan of choice. DBplus with Contribution Choice allows us to add contribution flexibility to meet the different needs of employers and members and, again, be the best of DB and DC.

Some organizations strongly believe in providing their employees with some control and flexibility on how much they allocate to their pension retirement savings at different points in their careers. For example, young people are paying off student loans, starting a family, buying their first home. Contribution Choice allows them to contribute at different levels to their retirement savings as their financial needs change.

It gives members a voice in their contribution levels if they choose.

Why are employers moving to DBplus?

Dobson: Across Canada, I hear three themes that go beyond pension solutions to business solutions. Number one, by far over the last 12 to 18 months, is winning the race for talent. Pensions matter in this race. Studies show people leave jobs to get better pensions. Better pension plans not only serve as an attraction tool, it helps them improve talent and retention strategies.

The second business issue is a need to focus on the core business. To do so, employers want to get rid of pension risk management, governance responsibilities, and fiduciary risk. From an employer perspective, CAAT steps in and owns all the administration duties and fiduciary and compliance elements. As well, we can extend our scale so that employers can offer a world- class, gold standard pension plan at a lower cost and lower risk.

Finally, the last thing I’m hearing ‒ and it’s emerging and gaining more traction ‒ is the need to align with environmental, social, and governance (ESG) standards in terms of social responsibility or, oftentimes, corporate social responsibility (CSR). Employers are saying they can deliver on a better and more equitable benefit and they can get all employees under one program, even if they distinguish between different groups from a contribution level perspective. So this really is a game changer. It’s ensuring social responsibility by providing employees with more in retirement, without taking on additional costs and risks.

And security in retirement is good for society. Studies show a positive impact on social pro- grams and healthcare. People with secure retirement income are happier with their lives, volunteer more in retirement, and generally contribute a lot more to their communities. So that alignment to the ‘S’ in ESG is the third main theme.

What types of employers are joining DBplus?

Dobson: The 250 employers using DBplus are quite diverse.

Our 2021 statistics show 60 per cent of the growth in our plan membership came from people who had either no workplace pension plan or a capital accumulation plan ‒ DC or RRSP. So 60 per cent of the growth is people moving to a DB plan. The 40 per cent remaining are those who wanted to get risk off the balance sheet, but still want to offer DB with less risk and less cost stress.

In terms of our criteria, our purpose is enhancing the retirement income security of Canadians. There are no thresholds attached to that. We have employers from 12 different industries participating in the plan. We have members in every province. We have federally regulated employers in our plan. Basically, our doors are wide open. It’s really about aligning to what we’re trying to achieve ‒ enhancing the retirement income security of Canadians. Most employers who come knocking on our door are aligned to that same goal.

We know about the challenges that Canadians are facing today when saving for retirement. Are there any challenges that we’re overlooking or we’re not aware of?

Dobson: The major challenges I see have been around for decades.

Number one is lack of access. Most Canadians can’t access a workplace retirement program. In the private sector, less than one in 10 have access to what I call a complete pension solution.

Despite that, there’s an overwhelming desire to have a workplace pension plan and to contribute to it. Employees are willing to put in their own money or take lower pay to get a better pension.

The 90 per cent of private sector workers who don’t have a DB pension plan in the workplace leads to challenge number two ‒ too much complexity, too much uncertainty, and too much risk put on the individual’s shoulders. Very few workers have the training or expertise to man- age investment accounts or volatility. Studies articulate time and time again that the stress of uncertainty and volatility often has a major, but hidden, impact on their mental and physical health.

The last major challenge is inefficiency. Individual account balances are the most expensive and inefficient way to pay for retirement. A study by the National Institute of Aging and Common- wealth shows it’s about four times as expensive to do it on your own.

DBplus was designed to solve all of these issues – the coverage issue, the complexity issue, and the efficiency issue – by making pensions simple for workers and employers.

What are key considerations for plan sponsors and employers to keep in mind over the coming months and years?

Dobson: The core needs of employees have not changed much since I began working in pensions more than 30 years ago. The silent majority of workers remain deeply stressed about saving to live well in retirement and still want a better pension plan that delivers secure, valuable, lifetime retirement income.

Today, with the race for talent and the demo- graphic conditions likely to create even more challenges, employees now have a voice. And that voice and the data that supports it are saying, “I want and need a better workplace pension.” Better pensions are the cornerstone of strong employee retention, culture and loyalty, and employers should be listening closely as they assess business solutions to manage talent, change, risk, cost, and ESG.

Derek Dobson is the CEO and Plan Manager for CAAT Pension Plan.