A look at one of Canada’s oldest DC pensions through the eyes of a 100-year-old retiree

While defined contribution plans were a small piece of the pension market when Benefits Canada first rolled off the presses in 1977, the Co-operative Superannuation Society had already been operating for almost 40 years by that point.

Founded in 1939 in Saskatoon, the society’s pension plan is one of the country’s oldest and largest defined contribution plans. Today, its assets total $4.3 billion, and it serves more than 350 employers and 46,000 current and past co-operative and credit union employees across the country.

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Harold Chapman, who turned 100 in April, began contributing to the plan in 1955. He was director of the Co-operative Institute, an organization established to teach co-operative principles that later became the Western Co-operative College. In 1956, he contributed $300 to the plan, an amount matched by his employer. Over the years, the amounts escalated, and by 1981, Chapman’s annual contribution was $2,600, while his employer put in $2,400 for a five per cent match.

In those days, members of the plan had limited investment choices, with just a single balanced fund available. The plan introduced a money-market fund in 2005 and then a bond and equity fund in 2010.

Martin McInnis, executive director of the plan, says the addition of new funds was a natural evolution after members asked for more risk than the balanced fund was offering. “People wanted to manage their own portfolios, rather than just have that one default position,” he says, noting about 90 per cent of the plan’s money is currently in the balanced fund.

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Despite the lack of investment choice, Chapman says he has sufficient information about the intricacies of his pension. “When I was at the Co-operative College, each time the managers came in, we had a speaker from the pension plan explaining it.”

Indeed, the plan’s member services manager, Dave Kapeluck, and his team conduct 12 workshops each year for members and their spouses. “It’s a few hours, and the team runs through what the retire ment income options are,” says McInnis.

The sessions, he adds, include “a lot of the things they need to consider in terms of figuring out if they want to go annuity or [variable benefit] or a mix.”

At retirement

Before Chapman retired from his role as member relations director for Federated Co-operatives Ltd. in April 1982, he attended a workshop put on by the society about his decumulation options, including purchasing an annuity from the pension plan or an insurance provider; a variable benefit; a combination of the two; or taking his money out of the plan.

Pension funds can no longer offer in-house annuities due to pension legislation, says McInnis. “There’s a few things we’re able to do because we were grandfathered,” he notes.

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About 25 to 30 per cent of the plan’s members opt to buy an annuity, according to its own research, which has found that, in general, members with lower accumulated balances tend to buy an annuity while those with higher amounts take the option of a variable benefit. Some retirees choose to combine the annuity and the variable benefit, says Kapeluck, “to give them some guaranteed fixed income each month for the rest of their life that’s not subject to the ups and downs of the markets and also the variable-benefit option to give them some flexibility and control.”

By 1982, Chapman had saved $130,000 in his pension. Of that amount, $20,000 was unrestricted additional voluntary contributions, so he withdrew them to buy a motorhome. He used $110,000 to buy an annuity, which pays him nearly $1,500 a month before taxes. “I’m still getting a pension now every month on the remainder of the money,” he says. “Looking back on it, I think I should have used some other method of financing a motorhome.”

But since an annuity is essentially a guaranteed income for life, Chapman has gotten a lot from his annuity purchase. He has now been retired for 35 years, which is longer than he contributed to the plan. “What Harold converted to the monthly pension or the annuity in May of ’82 was just a little over $110,000,” says Kapeluck. “And to date, his total payments are just a little over $600,000.”

Besides his regrets about the motorhome purchase, Chapman says he’s receiving enough money every month to give him a comfortable living. He notes he still feels connected to the plan as a retiree. “If I felt like saying something, I would feel that I had a say in letting them know any suggestions I have or any feelings I’ve got about the plan, because I’m a member of the co-operative.”

The opportunity for members to stay connected in retirement is one the plan works hard to maintain, says McInnis.

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“What we typically see in a DC plan is you accumulate to a certain point, you retire and then you need to do something with your money — which in a lot of cases means you’re going to another provider for the retirement funds. It’s something we really appreciate, that we’ve built trust with the members over a 30- or 40-year career and we’re able to continue to serve them post-retirement.”

Jennifer Paterson is the managing editor of Benefits Canada.

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