30,000 feet - third quarter, 2015

The biggest stories of the quarter with significant ongoing impact

Politics delay pension reform

Three major pension reform initiatives are essentially on hold until after the federal election. These include: (a) the rollout of the ORPP, (b) the federal government proposal to allow Canadians to make voluntary DC contributions to the CPP, and (c) a possible enhancement of the CPP.

Why plan sponsors should care

Any one of these three initiatives could change the pension landscape in a significant way and even bring to an end the ongoing national debate on pension reform. Unfortunately, action by employers to improve their workplace pension plans has been on hold for a very long time since government initiatives could override them. It is hoped that the results of the federal election will provide some clarity, regardless of which party wins.

Solvency concerns are back on the table

The recent stock market correction, combined with a drop in long-term bond yields, means that the funded position of DB pension plans has receded once again.

Why plan sponsors should care

The sponsors of DB plans should prepare themselves for higher contributions in 2016. Questions of sustainability may resurface and bring more pressure to revise rules, such as dropping solvency altogether, an idea already proposed in Quebec. The sponsors of closed DB plans who have been waiting for better capital market conditions to de-risk or even wind up their DB plans might be inclined to wait longer.

DC pension plans gain respectability

A US paper published by the Manhattan Institute asserts that “Claims of the superior efficiency of DB plans… are not supported by empirical evidence.” A separate study by the Defined Contribution Institutional Investment Association suggests that illiquid private equity investments can significantly benefit defined contribution account holders. Finally, research from the Center for Retirement Research at Boston College finds that the shift to DC plans has not led to less total saving.

Why plan sponsors should care

These three studies cast doubt on three criticisms of DC plans that have often been cited as reasons why DC plans are inferior or not sustainable. The next frontier is to improve the decumulation options within DC plans in order to eliminate or at least reduce the biggest fear of DC participants - that they will outlive their money.


30,000 feet - third quarter 2015 (PDF)