While the sustainability of defined benefit pension plans have long been a central talking point in the industry, they took a real hit during the 2008 financial crisis, a sting many plans feared would linger in public opinion.

“DB plans were obviously affected. Actually, all retirement savings plans were impacted,” says Darryl Mabini, senior director of growth and stakeholder relations at the Healthcare of Ontario Pension Plan. “DB plans came out in the media about being too expensive, [leading to] a lot of conversion to DC, because corporate Canada couldn’t handle them anymore,” he says.

Read: How do Canadian executives see the future of pensions and benefits?

As many media reports questioned the feasibility of defined benefit pensions, “some of the public sector plans just got worried that they were politically vulnerable,” says Malcolm Hamilton, a senior fellow at the C.D. Howe Institute.

Several public sector plans began to form groups within their membership to raise awareness and understanding of the value of a defined benefit pension. The groups also encourage members to tout the viability of these plans in an environment that has become somewhat hostile towards them.

HOOPP, for example, introduced its ambassador program in 2014. The pension fund found that in addition to educating members on their own situations, “we knew there was a subset of our membership who wanted to . . . take more of a proactive role in the education, so we created this ambassador program,” says Mabini.

“HOOPP decided quite a while ago . . . that part of its strategy, in addition to just trying to run the plan well and being financially successful . . . was to promote the defined benefit plan as a good and positive thing that all Canadians should aspire to,” says Hamilton.

“I think, in reality, it’s an attempt to shore up support for DB plans in the public sector which make people feel enthusiastic,” he adds. “And also to encourage, in a proactive way, people to disbelieve whatever criticism they hear about the cost of public sector plans.”

Read: Can the feds overcome opposition to pass target-benefit pension bill?

There’s a lot of misinformation about the characteristics of defined benefit plans, says Mabini, noting he wants to quell the common suggestion that they’re too expensive. “We didn’t see a lot of substantial evidence behind it, so HOOPP, along with some other pension plans, did some research around that time to promote the value of the plan to really show why defined benefit plans are good for the economy.”

Around the same time HOOPP established its ambassador program, the Canadian Public Pension Leadership Council funded a report that explored the ramifications of moving public sector defined benefit plans to defined contribution arrangements. The report concluded that “the perceived advantages to closing DB pension plans in the private sector do not translate directly into the public sector.”

The OPSEU Pension Trust is the most recent player to get involved, launching People for Pensions in April 2017. In a release, the OPTrust said its program “shares information with members and encourages them to share it with their peers, friends and families. This information highlights the benefits of a defined benefit plan versus other kinds of retirement savings vehicles and how the defined benefit model supports the economy.”

Read: OPTrust shines spotlight on DB model with new campaign

Any active member of the OPTrust plan can join the program. Within three days of its launch, more than 200 members had signed up, according to the release.

For the Colleges of Applied Arts and Technology pension plan’s Building Plan Champions program, “part of the motivation is also for members to be able to advocate for themselves in scenarios where others might disparage a defined benefit pension in a social situation,” says John Cappelletti, manager of stakeholder relations for the plan.

Cappelletti says many people don’t understand how the plans work at the most basic level. “They don’t necessarily grasp that members make contributions; further, the idea that most of a plan’s income comes from investment return,” he says.

Read: Pension industry challenged to deliver plans with DB features prized by Canadians

As well, while it’s true that within the public sector, the government funds any workplace pension in some capacity, plans like CAAT can’t fall back on a taxpayer bailout should it fall short. The plan is independently responsible for its own fate and if it gets into trouble, its recourses would be to cut benefits or boost contributions, says Cappelletti.

But for Hamilton, the big problem with public sector defined benefit plans is the accounting standards they use. He argues they’re out of date and make plans appear cheaper because of riskier investments with the potential for higher returns.

“And the risk that’s taken is borne by taxpayers, and the taxpayers are basically told that the plan has been made less expensive by the virtue of all the risk they as the taxpayers are taking.”

Read: Feds to review discount rates for pension, benefits obligations

And even with the potential concern about outside criticism of public sector defined benefit pensions, Hamilton says the true focus of the campaigns is on the plans’ own members and not about encouraging change in the private sector. “The campaign they’re running isn’t really directed at the private sector. I think they know full well that’s not going anywhere. It’s really directed at their own members.”

Copyright © 2022 Transcontinental Media G.P. Originally published on benefitscanada.com

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See all comments Recent Comments

Joe Nunes:

“They don’t necessarily grasp that members make contributions; further, the idea that most of a plan’s income comes from investment return,”

This is one of my favourites. It’s as if the ‘income fairy’ drops money in the plan that isn’t earned and you should only care about benefits that are paid for directly by contributions. Ignore the fact that the contributions made in the past could have gone to other productive uses.

I still love DB but we need to be clear on what the benefits cost, what investment risks are being taken, and who reaps the rewards and suffers the negative consequences for those risks. The truth about many public plans (not CAAT) is that all the rewards are with the members and all the negative consequences are with the taxpayers.

One of my favourite Malcolm quotes of all time….”if someone is receiving a guarantee, then someone is extending a guarantee”

Friday, October 27 at 11:33 am |

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