The pension industry needs to think outside the box.

It pains me to use such a hackneyed phrase(although probably not as much as it pains you to read it). So my apologies off the top. Believe me, I tried avoiding it. But I couldn’t think of an analogy that fit better or that wasn’t equally worn out. Management consultants everywhere are grinning smugly. I’m not sure where the saying “thinking outside the box” originated.(Who did the box belong to? What was it made of? And why did someone climb into the darned thing in the first place?)Nevertheless, when it comes to the pension industry, the need for out-of-the-box thinking seems to apply, albeit with one small variation. The fact is, the pension industry has not one box outside of which to think, but two. Those boxes are called defined benefit pension plans and defined contribution pension plans—DB and DC for short. Too often, these two choices are viewed as the only ones for employers who want to offer some sort of retirement saving scheme to their employees. And the two choices stand in stark contrast to one another. Under DB plans, the plan sponsor shoulders all the risk if the plan is underfunded, but shares in none of the surplus. Under the DC model, all the investment risk is carried by the plan member. It doesn’t get much more black and white than that. Surely, as an industry, we can come up with something a little more flexible and mutually beneficial to both sides. Fortunately, there are some options—either already available or on the horizon. Hybrid plans, which come in many forms and combine the characteristics of both DB and DC plans, have been around for years and are becoming more common. There is also the member-funded pension plan, or MFPP, a proposed model put forward two years ago by the Régie des rentes du Québec. Under the model, employer contributions would be fixed and members would be responsible for making up funding shortfalls as well as being entitled to any surplus. But why stop there? Instead of merely thinking outside the box, why not reinvent it entirely? To that end, we’ve asked a few industry experts to use their imaginations and years of experience to come up with ideas on what the new box might look like. If we’re going to solve the many challenges standing in the way of a secure retirement income for working Canadians, we’ll have to forgo some of the conventional thinking about employer-sponsored pension plans and come up with some new ideas. The out-of-the-box thinking being done today might just provide the framework for change and ensure the survival of the pension industry in Canada for the years to come. And that kind of a future is far from cliché.

Don Bisch

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