Worried about your DC plan members outliving their savings? Take a closer look at your decumulation options. The provincial government’s consultation paper on the Ontario Retirement Pension Plan (ORPP), released at the end of 2014, proposed members of comparable pension plans will be exempt from having to enrol in the ORPP. However, the definition of comparable was limited to DB plans and target benefit multiemployer plans. DC plans were excluded, since they lack inflation adjustments and expose individuals to longevity and investment risks. In short, DC plan sponsors and members would also have to contribute to the ORPP, to limit the danger of undersaving for retirement. Are DC plans incapable of providing an adequate level of retirement income that will last for the rest of the retiree’s life—and perhaps beyond, as a residual death benefit? The answer depends, in part, on the decumulation vehicles members choose.
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Article by Nigel Branker, partner and leads the Ontario pension consulting practice with Morneau Shepell, and Mary Mong, pension consultant with Morneau Shepell.