By June Smyth
I had the privilege of attending the DC Seminar in early September, hosted by the Canadian Institute of Actuaries. As part of the committee organizing the seminar, I was privy in advance to some of the topics but was thrilled to hear the seasoned speakers covering some excellent new content.
At a high level, Rene Beaudry gave an overview of the issues facing CAP plan members when they retire from a DC plan in Canada. Some legislation has been enacted to assist plan members, due to pressure from actuaries like Bonnie-Jeanne MacDonald and her colleagues at the National Institute of Aging. Products like VPLAs (Variable Payment Life Annuities) and ALDAs (Advanced Life Deferred Annuities) can assist retirees in establishing more stable pension payments in their later years. ALDAs are annuities that can be purchased by retirees to provide a guaranteed income for life beginning at any age after 71 and ALDAs can be established by pension plan sponsors or other external providers to pool investment risk and longevity risk by allowing for variable pension payments in retirement. VPLAs would set a pension amount at retirement which will aim to be indexed with inflation but can be reduced based on the experience of the group.
We then heard from Eleanor Marshall of the Bell Pension Plan highlighting how they have insourced VPLAs for their retired DC members; some of whom have retired from the Bell DC plan and others who transferred their DC assets to the Bell plan either voluntarily or through prior acquisitions. Advantages for the member include financial advice, lower fees, experienced investment managers and oversight and governance continuing by Bell. Advantages for Bell include continued relationships with its retirees (and the goodwill associated with that), lower fees for active members (due to higher asset base) and the feel good factor itself of helping retirees (because we can)! The VPLA option is also open to terminated members who retained their assets in the Bell DC plan when they left the company.
Dave Wild then presented on the Public Employees Benefits Agency which runs the largest DC plan in Canada. The plan covers 60 government employers in Saskatchewan (does not include Health Care or Teachers) and has been in effect since 1977. The plan allows transfers in and annuity options at retirement. Since the introduction of VPLAs, these are also offered. There are 8 investment options – the first being target date funds comprised of the 7 other funds which are all designed specifically for these plan members. The portfolios are determined by PEPP but managed externally and members have never requested any additional investment options. The target date option is the most popular at 67% of membership, however the Balanced Fund used to be the default fund and many have left their funds there when the TDFs were introduced.
At both the Bell and Saskatchewan plans, internal actuaries and analysts perform stochastic modelling and asset liability studies to project the future of the plan and any recommended variation in payments.
Finally Bonnie-Jeanne MacDonald and Barbara Saunders presented on the introduction of variable annuities into society – how it would work, who would join and how to make it viable. Very interesting. Lastly, Bonnie-Jeanne presented her research on CPP/QPP take up and provided a compelling case on why members who can defer should defer their CPP/QPP start date to age 70 (if they can afford it). Further, she discussed how actuaries should pressure the Canadian government to allow deferral beyond age 70, as life expectancy continues to expand and where possible, retirees can use retirement savings in their early years and then receive an enhanced, fully indexed, guaranteed income for life in their later years.