DC only designed for accumulation

Defined contribution pension plans were designed only with accumulation in mind, not decumulation, says Idan Shlesinger, of Morneau Shepell. Part of Osler's panel discussion on DC plans, he said the money in these plans accumulated to retirement and the notion was to hand it over to member and let them figure it out for themselves. Now, however, some plan sponsors want to be more involved. They don't want to go back to DB world, but they are looking for ways to, for example, pay variable income in retirement, to do so. Others have registered their own group RIFs to make sure employees benefit from lower fees and good governance and to stay engaged with their former employees. Jonathan Marin, of Osler, said one reason sponsors are not more involved in decumulation is the legislation in jurisdictions like Ontario is not quite there to allow variable payments from DC pension plans. As well, there are no real incentives to move in that direction by providing, for example, safe harbours for plan sponsors and there are no negative incentives to make employers focus on decumulation. Employers are also concerned that it will add costs and fiduciary obligations which is a valid concern if employees are kept in a sponsored plan. However, there are alternatives for employers, said Marin. They can provide education for employees heading into retirement or negotiate lower fees for those transitioning out of their DC plans into retirement plans. However, he advised that even without decumulation plans, employers still have an obligation to communicate information to plan members on the payout phase. (End of article)

Source: Benefits and Pension Monitor News