Portable non-employer retirement benefits could be a useful tool in addressing the underperformance of the U.S. retirement system as a whole, according to a new report by Common Wealth and the Aspen Institute Financial Security Program.
These programs, which would be tied to employment but not to a specific employer, could be sponsored by a number of parties, including professional associations, trade associations, groups of employers, labour unions, payroll companies, platform companies, new worker organizations, faith groups and others.
The paper suggested the growth of the single-employer retirement provisions has plateaued, prompting the need to explore additional options.
There are four main categories of future retirees that these programs could help: lower and moderate-income workers; those who work for smaller and medium-sized organizations; the self-employed and contingent workers. Harnessing these cohorts represents a massive opportunity for private providers, noted the paper.
Along with cases in Australia, the U.S. and the U.K., the paper looked at examples of portable non-employer retirement benefits being used in Canada.
In examining the viability of the various systems, the paper suggested specific variables should come into play: the need or demand within a specific group of potential members; trust in the plan sponsor; duration of member relationships; alignment of interests; ability to enrol; and the ability to partner with other providers.
For example, a model controlled by a trade association could help provide coverage for those working for a smaller business, but that would come with the tradeoff of not having a direct employer-employee relationship with members.
For its Canadian example, the paper discussed the Co-operative Superannuation Society pension plan, established in 1939 and one of the oldest defined contribution plans in Canada. It provides retirement benefits for more than 350 co-operatives and credit unions, most of which have fewer than 25 employees.
All told, it serves about 47,000 members and holds US$3.5 billion under management. Its governance structure is unique in the pension world, according to the paper, with a board of six directors overseeing the plan, aided by actuaries and investment consultants.
As well, a delegate body of 36 people is elected for the plan, half chosen by employers and half by employees. The delegate body then elects the board of directors. Delegates directly represent members and are the only parties with the power to change bylaws or approve changes to the plan, although they do accept guidance from the board of directors. The fiduciary duty of the plan is shared between the board and the delegates.
There are 21 staff managing the plan, including four in-plan financial planners. The planners help members understand how their pension fits into their broader financial situation, as well as providing general financial education.
The paper noted the CSS plan is a good example of a well-functioning, multi-employer DC plan, with a few specific features that contribute to its success: the structure where employer and employees have their voices heard within the governance structure; the economies of scale it can take advantage of; and the fact that the plan is customizable for both employers and employees.