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Pension plans need new metrics to adapt to millennials’ ascent, changing work reality

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Charles Spina:

The fundamental metrics don’t need to change. If Peters’ and Waterman’s “stick to the knitting” applies anywhere, it is to the millennials discourse as it concerns pensions.

Non-standard work arrangements have been around since the beginning of time. Why do we suggest “new” metrics when we all know that the metric that matters most to every member every retirement arrangement is what could be term the SRR or Secured Replacement Rate, which is why we need to retrench our thinking and crystallize design and funding strategy around the philosophy that pensions are deferred compensation……full stop. That will serve to short shrift nonsensical distractions such as so-called “target benefits” plans, which score a zero when it comes to securing accrued benefits and replacement ratios, and the misguided suspension of solvency valuations.

A number of years ago, immediate vesting was one of the ways we overcame what had become a huge phantom accrual problem in this country, given the emergence of these unconventional work arrangements, which, lest we forget, were forced on millennials by HR people andl business owners who, in the late 1980s, became skilled at spreadsheet-driven compensation cost reduction through forced retirements, short shifting of younger staff and other liberties taken with Ontario’s ESA (to cite one province.)

The gutting of traditional, predictable employer/employee relationships in favour of ones (both involuntary and voluntary) that result in spotty earnings history across multiple employers, and their corresponding accrual pockets, makes it all the more necessary to optimize the narrative around cumulative accrual reporting at the member level, and locked-in accruals.

So it is more a question of what sponsors and their advisors are going to do to restore the “promise” to the pension promise, and less about this fiction that the majority of millennials have found themselves in pension limbo by choice.

These days, a lot of the promises that were made 20-30-40 years ago are being broken.

Tuesday, December 19 at 2:50 pm | Reply

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