During a panel discussion at Benefits Canada’s 2024 Defined Contribution Plan Summit in February, three defined contribution plan sponsors shared their respective decumulation journeys and their thoughts on where the DC plan sector is in terms of effectively supporting this particular phase of plan members’ lives.
At ATCO Ltd., roughly 5,500 employees are enrolled across three DC plans, said Brent Perdue, the company’s senior manager of pension and benefits (pictured centre). Having closed its defined benefit plan 26 years ago, the company is just starting to tackle decumulation among plan members enrolled in its DC plans. He noted decumulation support can help plan sponsors differentiate themselves amid a competitive labour market.
Read: Expert panel: How DC plan members can hedge longevity risk for more effective decumulation
“It’s easy [for workers] just to go across the street to another employer and get the same [DC plan], so you have to have something at the end of that road, such as a decumulation option, where somebody doesn’t feel like they’re just by themselves.”
Also speaking during the panel was Roman Kosarenko, senior director of pension investments at Loblaw Companies Ltd. (pictured left). The supermarket chain has more than 220,000 employees, 40,000 of whom are enrolled in its various corporate and franchise DC pension plans. While the company has been a proponent of decumulation, it has faced difficulties finding a suitable solution due to scale.
“Many things are not scalable. The company is very cost-conscious [and] we don’t want to be eating into the investments of our plan members by providing complicated solutions they don’t necessarily need. It’s not for lack of trying. We’ve approached pretty much every financial institution in Canada [and we’ll] keep knocking on that door and advocating to the lawmakers through industry associations.”
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Among the University of Victoria’s three employee pension plans, its largest is a hybrid plan that has offered variable annuities and variable benefits for several decades, said Randi Topp, executive director of pensions and plan governance (pictured right).
“We’ve been doing variable annuities within our plan for several decades. . . . We give people an adjustment based on the actual performance of the fund and the adjustment can be up or down. We also give our retirees an option of a variable benefit within the plan, so you don’t have to pick the full annuity election — you can split it and you can also have a variable benefit, which is similar to the life income fund where you pick between your minimum and your maximum the amount that you want to withdraw each year.”
The three panellists agreed that despite plan sponsors’ best efforts, the DC plan sector has a long way to go in tackling decumulation. According to Kosarenko, the issue won’t be resolved until all stakeholders recognize there’s a problem and can agree on what exactly that problem is.
“Our regulators don’t actually think that there is anything broken, so if it’s not broken, so why fix it? For example, the elephant in the room is group [registered retirement savings plans]. They aren’t regulated or recognized in the same way as registered pension plans and because of that, there is no architecture about how a person with RRSP asserts can retire. Instead of building those bridges and those transfer routes to deliver [decumulation] solutions to plan members, we create more and more unconnected pockets, like first-time homebuyer accounts and tax-free savings accounts.”
And while British Columbia recently introduced legislation to allow variable payment life annuities, restrictive regulations could deter plan sponsors from offering this product, noted Topp.
“I think it’s important for the regulations to be flexible and let employers have at least a little bit of decision-making available so that they have some choice in the matter. If you’re enforced to do everything that someone [else] thinks is a good idea, the more hesitation there’s going to be.”
Read more coverage of the 2024 DC Plan Summit.