To fix the pension accessibility issue, CAAT says their DBplus plan design is the best of both DC and DB plans. Here’s how it works
Reflecting on his twenty-plus year career as a pension actuary, Haris Sardar, a director at CAAT, says the availability of secure, predictable pensions has been a problem in the past due to lack of accessibility or risk for employers. But they don’t need to be. In fact, he says CAAT’s DBplus plan design is the best of both defined contribution and defined benefit worlds, as the Plan provides “a secure lifetime conditional indexed pension to employees for a fixed defined contribution type-cost to the employer.”
“Employers are now starting to look at retirement planning from a holistic standpoint of retention and attraction of staff, which, in turn, can make their workforce more engaged and increase the company’s profitability. Through DBplus, our members can concentrate on their primary work duties, as opposed to managing their retirement plan on the side and putting their energy there,” Sardar said.
Sabeen Purewall, VP of solutions and partnerships at CAAT, believes DBplus is the catch-all when it comes to having a modern defined benefit plan. He says it helps workplaces implement and win the marathon for new talent.
“In conversations we are having with business leaders across Canada, we are learning that talent attraction and retention strategies remain a top priority for an increasing number of employers,” Purewall says. “I’m proud to say that we’re delivering more retirement income security to a growing number of Canadians through DBplus while helping employers support their business and people strategies.”
Only 38 per cent of working Canadians have access to a workplace retirement plan. However, surveys show that 70 per cent of workers would take a slight pay cut for a better (or any) pension plan. CAAT's DBplus offering helps employers fill this void with its plan design and efficiency. According to a recent CAAT member survey, “90 per cent of our members stated their workplace pension was an influential factor in staying with their employer,” adds Purewall.
Sardar explains how CAAT has been able to make the DBplus plan work, which consists of different parts. The first, he says, comes from the enabling of legislation. In 2019, the Ontario government reduced barriers by making it a streamlined process for employers outside of the broader public sector to merge their pension plans with jointly sponsored pension plans (JSPPs). Despite being originally created to support the Ontario college system, this prompted the purpose-driven Plan to open its doors and welcome new members from several industries.
The second piece to DBplus’ success attributes to CAAT’s strong financials. As of December 31, 2023, CAAT's long-term funded status stood at 124 per cent with $20.1 billion in assets, and a $5.3 billion surplus. Additionally, Sardar says their 10-year net rate of return stands at 9.3 per cent.
The third strategy relates to economies of scale through pooling.
“If we’re pooling assets of these 24 colleges, why can't we pool together assets of all employers who started joining us and giving them access to investment classes which are not accessible to an individual in a group RRSP or to a smaller single-employer DB pension plan.”
The final piece that ties the DBplus package together is CAAT’s funding policy, which adjusts future benefits on a prospective basis. Based on Ontario legislation, benefits accrued to date are secure, but the rate of growth of prospective benefits can be adjusted as per the Plan’s funding policy. In fact, the Plan recently moved up to level 5 in its funding policy, leading to the annual pension factor used to calculate DBplus pensions to increase from 8.5 per cent to 9.5 per cent on January 1, 2025, for pensions earned going forward from that date, said Sardar. CAAT's management and investment strategy allows the plan to continue to offer enhancements in accordance with the plan's funding policy.
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Indeed, CAAT has seen residual success with DBplus, Sardar highlighted. Since the legislation was passed, the organization has doubled their membership in the plan, representing 440 employers and 100,000 plan members in over 20 industries, such as the private sector, not-for-profit, for-profit and the broader public sector. CAAT believes this allows them to continue innovating in the pension space, providing their members with more retirement income security than capital accumulation plans currently available in the market.
“By covering our demographics across industries, that's how we are diversifying that risk. It's one of the pillars of how we will make the plan stronger and resilient for the future,” said Sardar.
There are solutions and trends in the industry that indicate the industry is moving towards a resurgence of DB plans, Sardar added. That resurgence is coming through solutions such as shared costs and decisions around benefits, contributions, and risks, like CAAT’s JSPP model, or pooled pension plans.
“There are also other pooled pension plans in the public sector known as target date benefit plans or multiple employer pension plans (MEPPs). Those are all based around pooling of the risks and are seeing a comeback.”
