The OPSEU Pension Trust is launching a new defined benefit plan for employers in the broader public sector, charitable and not-for-profit industries.
OPTrust Select will target employers that currently don’t have a defined benefit plan but may provide a capital accumulation program. With employers and employees contributing three per cent each, the plan will provide for an annual pension accrual rate of 0.6 per cent of earnings. Earnings upgrades and cost-of-living increases will be dependent on the plan’s funded status and annual board approval.
“We believe that there is a retirement income crisis in Canada and it is growing,” says Hugh O’Reilly, president and chief executive officer of OPTrust. “What we have and what our members have, we want others to have.”
For the first two years of the plan, employers will also have to contribute an additional 0.2 per cent. “If an employer were to become insolvent, we want to make sure there is security for the benefits they are providing,” says O’Reilly.
O’Reilly notes the move will also benefit the Ontario Public Service Employees Union pension plan because having risk and operational costs spread out over a broader membership base over the long term will provide enhanced sustainability. “We have a demographic issue; we have one active member for every inactive member,” says O’Reilly. Spreading that demographic issue across a broader number of members will be a significant benefit to both plans, he says.
The guaranteed income a defined benefit plan provides has a real effect on the quality of life for retirees, O’Reilly added. “Perceptions govern behaviours. People worry, they fear they are going to outlive their money. So then what happens? They don’t eat as well. They worry more and then they don’t do things like fill their prescriptions,” he says.
While no employers have joined the new defined benefit plan yet, OPTrust has been in conversations with different organizations, according to O’Reilly. “We would expect, over the next several months, to have several employers and organizations on board.”
Combined with the Canada Pension Plan and old-age security benefits, the plan aims to provide a 50 to 60 per cent income replacement rate for someone who makes between $50,000 and $60,000 a year. “The critical thing is if people know they have some guarantee, they will have a better retirement experience,” says O’Reilly.
This story was originally published on benefitscanada.com.