30,000 Feet

You are here

30,000 Feet - Third quarter, 2012

The Biggest Stories of The Quarter With Significant Ongoing Impact

PRPPS OFF TO A WOBBLY START

The recent change in government in Quebec will almost certainly delay the launch of the Voluntary Retirement Savings Plan (VRSP), Quebec’s version of Pooled Registered Pension Plan (PRPPs). As a result, the only jurisdiction that is expected to offer PRPPs by the start of 2013 is the federal jurisdiction and readers may recall that this was the watered down version that did not require employers to offer a PRPP to employees. There is no sign that the other provinces are anywhere close to launching their own versions of a PRPP and no indication of whether it will be mandatory or voluntary for employers to offer it.

WHY PLAN SPONSORS SHOULD CARE

One senses a lack of political will in bringing PRPPs to fruition. This may mean that an expanded C/QPP may still be on the table. In the meantime, employers should not be too quick to write off the pension plans they offer to their own employees.

UNIONS INCH CLOSER TO ACCEPTING DC PLANS

Ford and the CAW just negotiated a new pension plan for new hires which will be a slimmed down DB plan plus a DC plan. It is likely that Chrysler and GM will implement similar plans for their unionized employees.

WHY PLAN SPONSORS SHOULD CARE

The last bastion of traditional DB plans was public sector plans and plans for unionized employees. In the previous quarter, we saw movement in the public sector when New Brunswick announced its new Shared Risk Plan which is a highly progressive new hybrid arrangement similar to the much-touted target benefit plans. Now it is the turn of private sector union plans to consider alternatives. It is highly significant that the big three automakers are adopting a combination DB-DC plan while the automakers are profitable and the economy is as close to normal as we have seen in five years. This may open the door to hybrid plans being raised in other collectively bargained situations. What will accelerate the process will be legislation permitting target benefit plans.

PENSION EXPENSE CONTINUES TO CLIMB

Morneau Shepell’s Expense Index for August shows that pension expense is up 18% from what it was at December 31, 2011. The main reason is that discount rates continued to fall.

WHY PLAN SPONSORS SHOULD CARE

Employers may need to brace for another jump in pension expense in 2013. If the global economy and especially the Euro situation start stabilizing, there is still the chance that interest rates will rise and will wipe out this increase before year-end.


30,000 Feet - Third Quarter, 2012 (PDF)