As wages continue to climb, employees are increasingly finding their pensions restricted by the Income Tax Act limits under the registered pension plan. As a result, employers are finding it necessary to offer supplemental pension arrangements not only for their senior executives, but for their middle-management employees as well, according to a survey.

Buck Consultants’ survey of Supplemental Employee Retirement Plans in Canada found that the maximum pension limit has fallen to 1.8 times the average wage today from seven times the average wage in 1968, causing the “E” in SERP to apply to employees as well as senior executives.

According to the survey, 69% of the respondents said the most important issues for a “type 1” or top-up plan are employee communication/ understanding and adequacy of benefits, followed by cost containment and governance structure at 67%. Sixty-five percent identified employee satisfaction, while 64% chose value for the money and asset management, and 60% acknowledged administration.

For “type 2” or executive plans, the response from plan sponsors was slightly different. Seventy percent identified employee satisfaction as the most important issue, followed by employee communication/understanding at 68% and cost containment at 66%. Sixty-three percent identified value for the money, 62% adequacy of benefits, and 60% governance. Asset management and administration were the lowest ranked issues at 58% and 52%, respectively.

Charlene Moriarty, an actuary with Buck Consultants, points out that four of the top five important issues for top-up plans—employee communication/understanding, adequacy of benefits, cost containment, and governance structure–also made the top five issues for sponsors of regular defined benefit (DB) plans. “This is not surprising, given that top-up plans are just that—top up arrangements that often apply to all employees whose benefits may exceed the limits some day,” she says. “Plan sponsors likely see top-up plans as merely extensions of the regular plan, so the important issues for the regular DB plan would automatically apply to the top-up plan as well.”

The survey also points out that since SERPs are not regulated the way the basic employee pension plans are, funding is not required, and many are unfunded. When asked whether their plan is funded and by what method, about 50% of respondents indicated that their SERPs are unfunded.

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