# What's Up with the lack of interest in DC pensions?



## Eclectic12 (Oct 20, 2010)

From the "Incorrect Calculations" thread ... a couple of issues came up that were taking the thread off topic.
I'm starting a new thread to allow people to comment.


Why do so few people know much about their pensions?

The suggestion is that they are busy building careers/family and don't pay attention until they are ready to retire.

From what I've seen ... it seems to be more that they are avoiding financial topics/learning. I've seen these same career/family types put all kinds of time into learning their hobby so it does not strike me as a time issue. 


What is the value of the advisors made available for the DB pension?



> ... how valuable is an advisor's assistance when you only have 12 funds to select from, 3 in fixed income, 3 from Balanced, 3 from Canadian Equity and 3 from US/International?


The idea here seems to be the choices are limited so there's not much benefit. (Side note: If the summary is misrepresenting the idea, feel free to add or correct.)

Whereas from my POV - those who know about investing will pick what fits their plan. Those who don't know anything about investing ... if they were making use of the advisors and sample allocations, could benefit compares to "I'll stick it all in fixed income".

The key here is that there's only limited choices, where the ways of dealing with expenses are limited.


Then there's the idea that DIY retirement accounts such as a DC pension means one has no choice but to learn (aka forced) to make the right choices/decisions. 

This does not seem to match up well as an early easy lesson would be to max out DC pension contributions to capture the employer matching.

Just for one person who had the option of employer matching $62,500 was missed out on!
http://brighterlife.ca/2014/09/30/e...-it-ever-too-early-or-too-late-to-contribute/

Manulife, in one DC plan alone 40% of plan members are under the employer's matching cap and losing free money. Another company reports regularly paying out in matching funds 40% to 50% of what they made available and budgeted for.

http://business.financialpost.com/p...ing-advantage-of-defined-contribution-pension

Perhaps the most disturbing part is that a 2005 US study found that providing info about the employer matching fails to raise the contribution rates. Other studies have shown that putting the onus on the employee to opt out does raise the contribution rates.



Comments? ... Thoughts? ... Have your co-workers taken control of their DIY pension?


Cheers


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## none (Jan 15, 2013)

Pensions, and in particular the 'golden government' ones are really not worth the reverence they are given. This is how I see it. They put in 8% of my salary (and I'm paid at least that under private market) and I put in 8% and they manage it at the level that I make about 6% a year on it. Big deal. 

The best thing about it is it's a forced savings plan. Sure it's great for some people but really.. I'd do better if I was just given the 8%.

Anyway, whatever, it is what it is and 8% match is pretty great (although like I said, it's just what should be salary anyway).


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## sags (May 15, 2010)

DC pension plans don't force people to do anything and that is the problem.

Everything other than forced savings has been an abject failure for the masses.

Pay taxes and get OAS.........okay, that works for them.

Contribute to CPP and get pension............okay, that works for them.

RRSP............no interest.

TFSA............no interest.

Pooled pensions..........no interest.

With the new Ontario Pension Plan, I suspect companies will transition their DC pension plans into the Ontario plan, and the forced savings will be a good thing for most people.


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## mind_business (Sep 24, 2011)

I agree with both none and sags. CMF members are not representative of the average Canadian when it comes to finance. I too would prefer my company to simply give me the amount they contribute into my pension. I'm not sure if I could achieve higher returns, however at least I wouldn't have to worry about the 'health' of my pension plan ... will it be fully funded when I retire.

However, for the masses, people tend to lean towards instant gratification. Eat copious amounts of junk food because it tastes good ... spend money because it feels good. Most people have little to no money left at the end of the month for any kind of savings. Unfortunately, for the greater good of society, 'forced' government-savings plan is the most effective way to ensure we don't have generations of retirees eating cat food.


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## Beaver101 (Nov 14, 2011)

none said:


> *Pensions, and in particular the 'golden government' ones are really *not *worth the reverence **they are given*. This is how I see it. They put in 8% of my salary (and I'm paid at least that under private market) and I put in 8% and they manage it at the level that I make about 6% a year on it. Big deal.
> 
> The best thing about it is it's a forced savings plan. Sure it's great for some people but really.. I'd do better if I was just given the 8%.
> 
> Anyway, whatever, it is what it is and 8% match is pretty great (although like I said, it's just what should be salary anyway).


 ... yes it is with indexation to match with increasing costs of living. Try finding that with private pension plans - getting rare these days. As for whether you do better on your own - that remains to be seen.


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## Beaver101 (Nov 14, 2011)

sags said:


> DC pension plans don't force people to do anything and that is the problem.
> 
> Everything other than forced savings has been an abject failure for the masses.
> 
> ...


 ...why? Does the newly created Ontario Pension Plan have a track record? 



> and the forced savings will be a good thing for most people.


 ... which group of people? This is not going to benefit companies that already have a private pension plan in place but instead will be an added burden (cost) on those companies that don't - medium and smaller companies. For e.g., will manufacturing companies benefit?


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> From the "Incorrect Calculations" thread ... a couple of issues came up that were taking the thread off topic.
> I'm starting a new thread to allow people to comment.
> 
> Why do so few people know much about their pensions?
> ...


 ... could be one of the reasons, possibly a core one. And if time isn't an issue, then what else could it be? Perhaps, they have enough to begin with and don't need to have to "worry" about retirement or that they feel they have accumulated enough already for retirement? There could be a million reasons (or excuses :biggrin. 




> *What is the value of the advisors made available for the DB pension*?
> 
> The idea here seems to be the choices are limited so there's not much benefit. (Side note: If the summary is misrepresenting the idea, feel free to add or correct.)


... I don't think employees have a say in a "DB" plan even one where employee contributions are required. Any advice coming from the (investment -fund) adviser and even the plan administrator is only of value to the employer, not the employee. 

Thus, I think you're referring to a DC plan where employee has to make the investment decision as per your next statement. 



> Whereas from my POV - those who know about investing will pick what fits their plan. Those who don't know anything about investing ... if they were making use of the advisors and sample allocations, could benefit compares to "I'll stick it all in fixed income".
> 
> *The key here is that there's only limited choices, where the ways of dealing with expenses are limited*.


 ... both, as in limited choices of investment vehicles (funds only - and conservative and brand-names) and ways of dealing with expenses. Afterall, the masses have started out with an education of this is "saving" for "retirement" and investments should be "safe". Just compare these 2 parameters to the flexibility of "investing" your self-directed RRSP with individual stocks for example. Financial "advisors" of pension plans with their cookie-cutter online robo-sample allocations or aa models are just that and the employee would still end up with a DIY to cater to their specific financial situation. Guess this is what you pay for ... .50% MER worth?




> Then there's the idea that DIY retirement accounts such as a DC pension means one has no choice but to learn (aka forced) to make the right choices/decisions.
> 
> *This does not seem to match up well as an early easy lesson would be to max out DC pension contributions to capture the employer matching.*
> 
> ...


 ... I had one co-worker in a previous job who had completely declined to participate in a hybrid DB plan because she felt the contributions taken out of her pay were too much when she was just starting her family. Eventually the company's pension plan had to wind-up and employees were given an option (very important decision) to transfer their pension or take a commuted value - one of her response was "at least I don't have to deal with that pension-windup business" unlike the rest of the group. She also felt her husband was able to take care of "their" retirement. Different strokes for different folks, what else can I say? 



> Comments? ... Thoughts? ... *Have your co-workers taken control of their DIY pension*?


 ... don't know as no one openly talks about it. But the perception is the younger ones are more focused on the season's final hockey games and the older ones (non-retired) are not talking about it - too personal. The middle-age are too busy maneouvering their careers in the office - or perhaps pension /retirement planning has been allocated a thought bubble somewhere in the back of their heads. IDK :wink:


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## cainvest (May 1, 2013)

none said:


> They put in 8% of my salary (and I'm paid at least that under private market) and I put in 8% and they manage it at the level that I make about 6% a year on it. Big deal.


I think the only question is, would you do better just investing your own 8%?
Being one without a pension I'd jump all over it if my company offered me such a great deal of matching my contribution and returning about 6%.


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## none (Jan 15, 2013)

Beaver101 said:


> ... yes it is with indexation to match with increasing costs of living. Try finding that with private pension plans - getting rare these days. As for whether you do better on your own - that remains to be seen.


Not really, you just change your risk profile as you age - but yes under the current rules if you had to retire in 2009 and forced withdraws from your RRSP that would be difficult.

This, however, is a great example of how government and pooled benefits benefit everyone. If you have a massive fund that pays cash out to various age classes it is relatively easy to develop a withdraw strategy that can deal with bumps like 2008.

I think I could do better 'on average' if I was given the 8% but living by the mean doesn't always work on a case-by-case basis. Like I said retiring on 2009 would have sucked (kinda).


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## GoldStone (Mar 6, 2011)

none said:


> Pensions, and in particular the 'golden government' ones are really not worth the reverence they are given. This is how I see it. They put in 8% of my salary (and I'm paid at least that under private market) and I put in 8% and they manage it at the level that I make about 6% a year on it. Big deal.


Big deal??? LOL. You have no clue how good you have it.

Your pension is guaranteed by the taxpayers. In other words, it is not tied to the fortunes of the capital markets. In other words, 6% a year return that you cited is a risk-free return to you. Please pray tell where in this world can you get 6% risk free??

You seem to think that 6% guaranteed is not a big deal. I'm guessing you are benchmarking it against stocks or balanced portfolios. That's just wrong. You should benchmark it against real risk-free rate, i.e. long term government bonds. Long term Canadas yield 2%. The expected return is equal to the starting yield.

6% vs 2%. Get it? The difference is risk. Who bears the risk? The taxpayers who guarantee your pension. Great deal for you, rotten deal for the taxpayers.

Discount future liabilities of your pension plan to the present using 2% instead of 6%. PV jumps dramatically. If your plan was using real risk-free rate instead of imaginary risk-free rate, you would be forced to contribute a whole lot more.



none said:


> The best thing about it is it's a forced savings plan.


No. The best thing is the guarantee. Your retirement income is not tied to the future returns of the capital markets. You are free to spend your current income to the very last dollar. And you don't pay the full price for this luxury, because of the make-believe risk free rate baked into your plan.


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## peterk (May 16, 2010)

Off the top of my head just from chats with co-workers/friends/family, the people making big mistakes regarding setting up their optional pension/RRSP matching plans are generally thinking:

- I don't want to lock my money away for 30 years
- I'm scared of meeting the advisor/banker and signing papers because I don't know what the hell they are talking about
- I'm scared to lose my money
- I'll be embarrassed when the advisor/banker figures out that I don't know what they're talking about
- I'm worried the bank will take advantage of me
- I don't need the money for retirement yet and the anxiety of trying to figure it all out is not worth the trouble


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## none (Jan 15, 2013)

GoldStone said:


> Your pension is guaranteed by the taxpayers. In other words, it is not tied to the fortunes of the capital markets. In other words, 6% a year return that you cited is a risk-free return to you. Please pray tell where in this world can you get 6% risk free??
> .



Risk is time dependent. Risk in 100% equities over a year is high - risk in 100% equities over 25 years is close to zero. B/c things are pooled in a pension this is what happens.


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## GoldStone (Mar 6, 2011)

none said:


> Risk in 100% equities over a year is high - risk in 100% equities over 25 years is close to zero.


No. Equity returns are not guaranteed. Period. Past performance is not predictive of the future performance.

Want guaranteed return? Use fixed income. Bye bye 6%. Hello 2%.


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## peterk (May 16, 2010)

none said:


> Risk is time dependent. Risk in 100% equities over a year is high - *risk in 100% equities over 25 years is close to zero.* B/c things are pooled in a pension this is what happens.


Tell that to the 125 million people in Japan...

Not saying that investing in equities over 25 year time frames is a bad idea, (It's a great idea). But the risk is not "close to zero".


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## none (Jan 15, 2013)

This is exactly why you have a broad portfolio and don't just invest in a single country.


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## none (Jan 15, 2013)

Risk is reduced by broad exposure and timeframe. That's why these pension plans generally work. With pay in and pay outs over long time periods it reduces overall risk. As for your example, I would never recommend anyone invest solely in a single country. 

Again gold. You need to consider timeframe for contributions and withdraws. It's the same for any portfolio. Putting sonething in a 2% gic when an employee is 20 and just entering the pension would be stupid.


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## GoldStone (Mar 6, 2011)

none said:


> This is exactly why you have a broad portfolio and don't just invest in a single country.


My point still stands. 6% is not a risk free rate.

There is a reason why no one but the government is able to offer (8% + 8%) plus 6% guaranteed on top of that. They can do it because they shifted the risk onto the taxpayers.


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## GoldStone (Mar 6, 2011)

none, diversification reduces nonsystematic risks, such as single-company risks, single-industry risks, single-country risks.

That's not the risk I'm talking about. I am talking about shortfall risk. The risk that future returns of diversified portfolios will be less than 6% return baked in the plan. Diversification does nothing to address the shortfall risk.


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## none (Jan 15, 2013)

They are a risk that needs to be considered. 

You fail to understand the power that time horizons and the group nature has on risk reduction. The risk is not offloaded to taxpayers but rather the grouping effect.



The only valid debate point is whether the 8% match the government puts in is a handout a a valid part of someones salary. Considering that government exployees in BC are paid below market when that 8% is not included I think considering the 8% match as part of a persons salary is valid.

To summarise, the BC pension plan works for the following reasons:
1) It is a forced savings plan;
2) It has generally low (ultimate) management fees;
3) It's grouping nature that includes many people that are retiring at vastly different times allows relatively high returns with low risk to participants;


This may help clarrify some points:

http://www.pensionsbc.ca/portal/page/portal/pen_corp_home/cpp_home_page/about_the_plan_qa/


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## fraser (May 15, 2010)

I would be shocked if any employers would transition their DC plans in to the new Ontario Pension. This would be a serious downgrade for most participants of company sponsored DC plans. The Ontario Plan has a number of serious challenges to overcome.....it is half baked.


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## GoldStone (Mar 6, 2011)

none said:


> You fail to understand the power that time horizons and the group nature has on risk reduction. The risk is not offloaded to taxpayers but rather the grouping effect.


No, you fail to understand my point. Time horizons and risk pooling do nothing to address the shortfall risk, i.e. the risk that return assumptions baked in the plan are damn too high.

Each guaranteed plan makes a number of actuarial assumptions:

* future life expectancies
* risk pooling effects 
* future number of plan participants
* future contribution rates
* future indexation rates
etc
etc
etc
* the last but not the least - future market returns

The last point represents an independent risk. If your starting return assumption is too high, time horizons and group risk pooling can't fix that.

I suggest that you read the report below. Malcolm Hamilton wrote the report for C.D.Howe Institute.

*Evaluating Public-Sector Pensions: How Much Do They Really Cost?*

=====================================

The Study In Brief

Public-sector pension plans in Canada are generally large, efficient and well managed. Funding levels are healthy when compared to private-sector pension plans in Canada and public-sector pension plans elsewhere.

And yet, all is not well.

There are large differences between the fair values of the pensions earned by public-sector employees and the “cost” of these pensions according to public-sector financial statements. These differences arise almost entirely from the pricing of guarantees. Specifically, the financial markets attach high values to the guarantees embedded in public-sector pension plans while government financial statements attach little or no value to these guarantees. This means that pension costs are materially understated and, as a consequence:

• employees in the public sector are paid more than is publicly acknowledged and, in many instances, more than their private-sector counterparts;
• public-sector employees shelter more of their retirement savings from tax than other Canadians are permitted to shelter; and
• taxpayers bear much of the investment risk taken by public-sector pension plans while the reward for risk-taking goes to public employees as higher compensation.

Private-sector pension accounting standards long ago rejected the premise at the heart of today’s public-sector accounting standards – that the cost of a fully guaranteed pension depends critically upon the rates of return that a pension fund can earn on risky investments even though the pension itself is totally unaffected by these returns. Public-sector accounting practice recognizes, today, the returns that a pension fund might reasonably expect to earn as a reward for future risk taking. These returns are recognized long before the risks are taken and used to reduce the reported cost of employee pensions. As a consequence, the reward for future risk-taking goes to employees who, because their pensions are fully guaranteed, take no risk. Future taxpayers, on the other hand, will be expected to bear risk without fair compensation. Essentially, we have devised a complicated way to transfer wealth from future taxpayers to current plan members.

=====================================


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## GoldStone (Mar 6, 2011)

Part II of Hamilton's report:

*Evaluating Public-Sector Pensions: Are Federal Public Servants Overpaid?*

===================================== 

The Study In Brief

The federal government appears to believe that pay in the federal public sector should be comparable to pay in the private sector on a total compensation basis. Two recent government reports are generally consistent with this view.

To implement this principle, pensions must be valued appropriately. Fair values are the best measure of a pension plan’s worth in a transaction where employees provide their labour in exchange for compensation that includes a valuable pension. However, governments appear not to apply fair value principles, preferring instead to use cost estimates developed for the funding of pension plans or for financial reporting in accordance with public-sector accounting standards. While the differences between fair values and funding estimates were not significant in the 1980s and 1990s when interest rates were high, the differences today are exceedingly large.

It is undeniably more convenient for the federal government to continue to use the numbers it has been using. But it is also wrong, for to do so is to collectively guarantee federal employees a 4.1 percent real rate of return on their retirement savings at a time when other Canadians must accept a 1 percent guarantee if they seek one or, alternatively, must bear significant investment risks in pursuit of a 4.1 percent real rate of return.

These guarantees are very advantageous yet public-sector accounting standards attach no value to them and the federal government appears to ignore them when assessing the reasonableness of employee compensation.

The payroll for members of the federal Public Service Pension Plan was about $20 billion in 2012, with pension contributions totaling about $4 billion. At fair market value, pension contributions would have been about $8 billion. As a consequence, the federal government underestimated the 2012 compensation of these members by $4 billion and reached a long list of erroneous conclusions about the cost of its pension plans and the compensation of its employees.

=====================================


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## janus10 (Nov 7, 2013)

Years and years ago, I worked for the Canadian office of a U.S. Headquartered company. In spite of employing only 14 people in Canada, we had a DC plan with matching percentages. I can't remember what the numbers were, but I took full advantage of it.

I now work for a 25 person Canadian company who offers nothing at all. So, that makes me wonder - what is the smallest company, by number of employees, that you know offers DC pensions in Canada which are not unionized?


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## sags (May 15, 2010)

I wouldn't assume employers will be interested in paying additional contributions to another pension plan (OPP), while maintaining the one they currently have.

As to the large pension plans and market risk, for some time already they have been transitioning into investments that better manage matching pension payouts with pension fund income streams.

They are using their large pools of capital in opportunities that small retail investors have no access to. Infrastructure and commercial real estate are 2 examples.

It is very unlikely the average investor would be able to out perform the pension funds in the future. They are no longer tied to government bonds or equity investments.

The HOOPP pension plan returned 17.7% last year and grew from 51 Billion to 60 Billion last year alone. That is a huge increase of 9 Billion dollars in one year.

It should be noted that the dire predictions on the collapse of these DB pension plans has not come to pass. 

Many DB pension plans have exceeded their own benchmarks and there has been a steady march towards 100% funding.

HOOPP recently announced they are 115% funded and it is rising. (If the 7 Billion dollar reserve fund was included immediately it would raise the funding level to 130%)

The board (a combination of pension fund managers, company representatives, and employee representatives) decided to restore COLA indexing to the 100% level from the 75% level, and paid their members for all the lost indexing from 2002 to 2015.

Members received a retroactive "special" payment and a big increase in their monthly benefits going forward.

Times in the pension world are changing from the doom and gloom of 2008, and have proven themselves much more resilient than some had claimed.

In a few years, more pension funds could be discussing what they should do with their surpluses.

The Ontario Pension Plan will have a fine slate of directors with a wealth of experience. I would expect the fund will perform very well.

http://www.theglobeandmail.com//rep...year/article23284869/?cmpid=rss1&click=sf_rob


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## fraser (May 15, 2010)

DC plan money is not in any way managed by employers. They contribute to it. 

The funds are managed by a third party like SunLife, Manulife,etc. The funds are held in separate trusts for each employee.

The employee typically has a choice of various funds each having different risks, mers, etc. 

It is not unusual for a DC plan to have an employer match of up to five percent, sometimes higher. On a dollar for dollar match this would mean 10 percent of salary, pretax, is being saved for retirement. Add CPP to this and the final amounts could be reasonable.....especially if the DC funds are invested properly.

DC plans can be attractive for employees who change jobs often. I seen to recall reading that employees entering the job market today are expected to have an average of 11 employers during their working lives.


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## dubmac (Jan 9, 2011)

fraser said:


> It is not unusual for a DC plan to have an employer match of up to five percent, sometimes higher. On a dollar for dollar match this would mean 10 percent of salary, pretax, is being saved for retirement. Add CPP to this and the final amounts could be reasonable.....especially if the DC funds are invested properly.


Great thread here...I'm learning/reading loads of material..thanks Goldstone...
My employer has a a base contribution (6.5% of salary from each of employer and employee - 13%), and then a voluntary top up (3% from employee, and 2% from employer = 5%) for a total of 18% salary per year. I've always contrinuted in the voluntary pgm being true to me scottish roots!

On a slightly different note, the amounts of unfunded liability that BIG companies pension funds incur when interest rates drop is quite significant...see link below.
http://www.theglobeandmail.com/glob...utions-to-corporate-pensions/article23135545/
The BIG companies like Bell, Telus, SU and other companies that we all invest in (pension funds, gov't, DC and DB included) have their liabilities increased every time interest rates drop..and all of this drops at the feet of the Bank of Canada and it's policy makers, so says the article!


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## Eclectic12 (Oct 20, 2010)

none said:


> Pensions, and in particular the 'golden government' ones are really not worth the reverence they are given. This is how I see it. They put in 8% of my salary (and I'm paid at least that under private market) and I put in 8% and they manage it at the level that I make about 6% a year on it. Big deal.


This thread is about DC pensions as my experience is that the average person does significantly better with a DB pension which they don't control versus choosing not to save or some silly investing choice (I know IT so I'll only invest in IT etc.).





none said:


> ... The best thing about it is it's a forced savings plan. Sure it's great for some people but really.. I'd do better if I was just given the 8%...


So you are saying your DB pension has *never* had an emergency top up ... which you are not responsible for but would be if you were given the money?


Cheers


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## Eclectic12 (Oct 20, 2010)

sags said:


> DC pension plans don't force people to do anything and that is the problem.
> Everything other than forced savings has been an abject failure for the masses...


This suggests that DC pensions being offered are changing.

*ALL* of the DC pensions I have been given info on or offered were forced savings. The variables I am aware of are what to invest in and whether to contribute more to get more employer matching.




sags said:


> ... With the new Ontario Pension Plan, I suspect companies will transition their DC pension plans into the Ontario plan, and the forced savings will be a good thing for most people.


Where the DC pension is forced savings - I suspect there isn't much of a difference. The key will be how many DC pensions are optional and how many companies switch to the OPP. 

I thinking it won't be many as I suspect there would be a transfer cost, there's suspicion that the Ontario gov't won't keep costs in line and as I recall, companies with a pension in place are exempt.


Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... Perhaps, they have enough to begin with and don't need to have to "worry" about retirement or that they feel they have accumulated enough already for retirement? There could be a million reasons (or excuses :biggrin.


There could be ... but most I've talked to are more like the co-worker who said "it's too complicated to figure out, if I don't have enough - I'll be a bag lady".

Then too ... the two who *had* advisors were focused on the loss of RRSP contribution room instead of what a DB pension provides. The one that ran the numbers figured his money would run out in half the time that the DB pension was guaranteed to payout. 




Beaver101 said:


> ... I don't think employees have a say in a "DB" plan even one where employee contributions are required ...
> Thus, I think you're referring to a DC plan where employee has to make the investment decision as per your next statement.


I thought I'd made it clear that I was referring to a DC pension but if not, my apologies.




Beaver101 said:


> ... Afterall, the masses have started out with an education of this is "saving" for "retirement" and investments should be "safe".


They don't seem to be coming into the DC pension with much education at all for investing, never mind retirement. The theme to DC pension info is that it should be one part of the retirement planning and that depending on one's time horizon - more equity may be needed.




Beaver101 said:


> ... Just compare these 2 parameters to the flexibility of "investing" your self-directed RRSP with individual stocks for example.
> Financial "advisors" of pension plans ... Guess this is what you pay for ... .50% MER worth?


Where there is a choice to use either company plan or one's SD-RRSP - then some key questions are whether one *will* use the RRSP and whether the choices will do better than the match.

I've seen some post here who say their DC pension was a $ for $ match, where they could transfer to their SD-RRSP after a year. 


IAC - I'd need to find some numbers as *all* of the DC pensions I have info for or was offered were not optional. Where one has to be in the plan, it's really a question of what one puts the money into and how it fits into the bigger picture (if there is one :biggrin: ).




Beaver101 said:


> ... "at least I don't have to deal with that pension-windup business" unlike the rest of the group. She also felt her husband was able to take care of "their" retirement. Different strokes for different folks, what else can I say?


She might think differently when she hits retirement ... or maybe her husband is a bank CEO where money is not an issue. It wouldn't bother me if she'd said "we've looked at our plans" but like so many I've run into it seems to be a misplaced focus and a feeling as opposed to a plan.




Beaver101 said:


> ... don't know as no one openly talks about it ...


Interesting ... there's usually been comments about how complicated it is, how people don't want to deal with it or on rare occasions "I think I'm doing this but I need to run it by my advisor to see that it fits into the big picture".


Cheers


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## Rebecca (Aug 10, 2014)

I love numbers, math, planning, and soak up investment information like a sponge. I LOVE IT! It makes my brain tingle with excitement when I learn a new investment "trick" or strategy, or how best to plan for the days ahead, but if you asked me to learn Russian, or Chinese, or even a language closer in structure to English or French, I would do anything in my power to avoid such a suggestion. I would make up excuses until the cows came home and balk like I've never done before. It would HURT my head too much to even consider such a thing! With the exception of one person, every other person I've tried to discuss money management with (for budgeting and/or retirement), their reaction has been to change the topic or RUN! I believe that is why people are not interested in their DC plans - they just don't have a brain that can accommodate math and planning, no matter how much they may want to, or know that it is so important.


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## 0xCC (Jan 5, 2012)

fraser said:


> I would be shocked if any employers would transition their DC plans in to the new Ontario Pension. This would be a serious downgrade for most participants of company sponsored DC plans. The Ontario Plan has a number of serious challenges to overcome.....it is half baked.


I would be shocked if a given DC plan falls outside the definition of what the Ontario government allows for exemption from the OPP and the employer *didn't* transition at least a portion of that DC plan over to the OPP.

To be clear, when I am hearing "Defined Contribution" plans here, I am thinking of basically a group RRSP. My employer has one of these set up and managed by one of the big 3 insurance companies (SLF, MFC or GW). For every 1% of my pay I contribute my employer matches up to 5%. So this is costing the employer up to 5% of my pay. If this plan does not allow my employer to be exempt from the OPP contributions why would my employer contribute to both the group RRSP and the OPP? In order to keep their costs the same I fully expect that for every cent they are forced to contribute to the OPP they will remove that penny from the contributions they will match on the group RRSP side.

Maybe we are thinking of different DC plans or maybe you are thinking that the DC plan will allow the employer to be exempt from contributing to the OPP. It isn't clear to me what sort of plan falls into the category that would allow an employer to be exempt from OPP contributions.


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## Beaver101 (Nov 14, 2011)

^


> ... Maybe we are thinking of different DC plans or maybe you are thinking that the DC plan will allow the employer to be exempt from contributing to the OPP. It isn't clear to me what sort of plan falls into the category that would allow an employer to be exempt from OPP contributions.


... here were some details from the announcement of the newly created ORPP ,

http://www.theglobeandmail.com/report-on-business/ontarios-proposed-pension-plan-excludes-half-of-workers/article18373313/



> A new made-in-Ontario pension plan will expand retirement incomes for three million workers in the province, but* exclude millions of others who already have workplace plans or are in federally regulated industries such as banking.*
> Ontario’s Liberal government unveiled its Ontario Retirement Pension Plan (ORPP) in Thursday’s provincial budget, saying it will *act as a top-up* to the Canada Pension Plan to improve retirement incomes for most workers. The initiative will be introduced in conjunction with a new *voluntary *savings program known as the Pooled Registered Pension Plan as a further boost to Ontario residents’ options to save for retirement....





> Also on Thursday, the government said it plans to* create a new pension plan manager for contributions made to the ORPP*, which are expected to top $3.5-billion annually. The new pension manager could also handle funds for other public sector entities and pension plans.


... creation of more jobs ... in the government of course. And who will be overseeing the soundness of this ORPP? FSCO, no mention at all?

Instead of creating an ORPP, why not just expand RRSP contributions? The commentaries in the above G&M article are much more interesting.


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## fraser (May 15, 2010)

Would any employer who has employees in Ontario and in other provinces want to operate two pension plans? Would the company want the admin burden and would the cost of the operating an existing DC plan for the employee base outside of Ontario increase if Ontario employees were no longer in the plan? Keep in mind that Ontario is loosing, and will continue to loose, manufacturing jobs. 

We have a mobile workforce. I am retired but I have worked in Quebec, Ontario, BC, and Alberta. I anticipate that in the future people will be even more mobile. So, would I want a CPP, OPP, and a DC or would I prefer a CPP and a DC.

I am very pleased with CPP management and investments. I have little confidence in the Government of Ontario. The shining asset of Ontario Hydro has been utterly mismanaged by successive Ontario administrations of all political stripes since the early 1970's. If you do not believe this, look at how hydro power has been managed by the provinces on either side of Ontario. Why would I want my pension funds overseen by the same quality of leadership?


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> There could be ... but most I've talked to are more like the co-worker who said "it's too complicated to figure out, if I *don't have enough *- I'll be a bag lady".


 ... well, I would tell them to sell those Hearmes, Louis Vitton or Coach bags and then they would have plenty. :biggrin: On serious note, they're well educated enough to know that they can apply for social assistance should they end up as a real bag lady/homeless. 



> *They don't seem to be coming into the DC pension with much education at all for investing*, never mind retirement. The theme to DC pension info is that it should be one part of the retirement planning and that depending on one's time horizon - more equity may be needed.


 ... again, the limited choices of GICs and (MM, bond, balanced, index) mutual funds in DC plans do not exactly create investment "buzz" like a 200% growth stock like APPL. If you were to offer your employees say, a 20% "guaranteed" growth through XYZ stock, watch how fast they would be willing to get the details of the equity investment arena.



> Where there is a choice to use either company plan *or *one's SD-RRSP - then some key questions are whether one *will* use the RRSP and whether the choices will do better than the match.


 ... at least there is flexibility with a SD-RRSP where you have choices (investment) and control (yearly contributions).



> I've seen some post here who say their DC pension was a $ for $ match, *where they could transfer to their SD-RRSP after a year. *


 ... that's a nice feature to have but I don't, not in my DC plan.



> Interesting ... there's usually been comments about how complicated it is, how people don't want to deal with it or on rare occasions "I think I'm doing this but* I need to run it by my advisor *to see that it fits into the big picture".


 ... well, at least they can afford to blame their advisor if their investment plan don't pan out. :biggrin: 

I also work in the financial-related field and the folks that I work with are very good with numbers, spreadsheets and all that stuff and I would think they're very financial savvy. However, there is no talk or discussions whatsover about "personal finances" in lunch or after-work conversations, let alone investments. Any questions about the investments in the DC or savings plans, call the financial advisor (fund company) directly. Any questions about the DC plan itself, read the plan document. Not sure what the DC plan administrator is for other than to pay an yearly visit to collect annual (administration what?) fees.


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## 0xCC (Jan 5, 2012)

fraser said:


> Would any employer who has employees in Ontario and in other provinces want to operate two pension plans? Would the company want the admin burden and would the cost of the operating an existing DC plan for the employee base outside of Ontario increase if Ontario employees were no longer in the plan? Keep in mind that Ontario is loosing, and will continue to loose, manufacturing jobs.
> 
> We have a mobile workforce. I am retired but I have worked in Quebec, Ontario, BC, and Alberta. I anticipate that in the future people will be even more mobile. So, would I want a CPP, OPP, and a DC or would I prefer a CPP and a DC.
> 
> I am very pleased with CPP management and investments. I have little confidence in the Government of Ontario. The shining asset of Ontario Hydro has been utterly mismanaged by successive Ontario administrations of all political stripes since the early 1970's. If you do not believe this, look at how hydro power has been managed by the provinces on either side of Ontario. Why would I want my pension funds overseen by the same quality of leadership?


I totally agree with all of these points. If an employer can be exempted from the ORPP because they have an existing DC plan (I personally hope that group RSP plans fall into this category) I would hope they would keep the plan they already have set up as-is and not make any changes. The question is whether the Ontario government will allow that. It is clear that an existing DB plan (like federal or provincial plans or municipal employees plan or teachers) would make an employer exempt but I haven't looked into things enough to figure out where the line gets drawn once you move into DC plans.

The point about mismanagement of public assets is even more interesting. The ORPP is being set up as the backing of the "Infrastructure Fund". So it is basically gong to be a pot for politicians to dips their hands into any time they need cash for "infrastructure" improvements. This seems like just a set-up where current workers/employers will be paying out to current retirees while the government skims any excesses (i.e. funds not required to pay out to current retirees) it can for its own uses.


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## Eclectic12 (Oct 20, 2010)

0xCC said:


> I would be shocked if a given DC plan falls outside the definition of what the Ontario government allows for exemption from the OPP and the employer *didn't* transition at least a portion of that DC plan over to the OPP.
> 
> To be clear, when I am hearing "Defined Contribution" plans here, I am thinking of basically a group RRSP.


My understanding is that *by definition*, a DC is a retirement plan which is not optional and is not a Group RRSP.


Where I've had the details or been offered a DC pension - there is no choice. One is in or out of the DC pension (i.e. forced retirement savings). The only choice is whether to add more than the required minimum (plus what investment that the company contracted for the $$$ is placed into).

In every company I've worked for (DB pension, DC pension or no pension) - the Group RRSP is optional and had no employer matching.


As your Group RRSP with matching seems to be optional, I suspect it will not be exempt and likely the company would want to shut it down.




0xCC said:


> Maybe we are thinking of different DC plans or maybe you are thinking that the DC plan will allow the employer to be exempt from contributing to the OPP. It isn't clear to me what sort of plan falls into the category that would allow an employer to be exempt from OPP contributions.


I suspect anything that forces retirement saving is going to be exempt and anything that allows the employee to opt out will not be exempt.
As I say, I have yet to see paperwork or have an HR person call a Group RRSP as "DC pension".

Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... Instead of creating an ORPP, why not just expand RRSP contributions?


I believe RRSP's are federal so that would be problem number one ... unless the provinces can convince the Feds where they failed with the suggestion of expanding CPP.



> Prime Minister Louis St. Laurent's government introduced what would become one of Canadians' most powerful retirement savings tools: the RRSP.
> 
> As of March 1957, the Canada and Quebec pension plans didn't exist. Only people with plans at work could deduct pension contributions for tax purposes.


http://www.canada.com/montrealgazette/story.html?id=11930dd7-830f-4109-bb76-7fcf5c21883e&p=1


Secondly - there's lots of articles about how much RRSP room is not used. Rightly or wrongly, likely this means the perception is that few would make use of it.


Cheers


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## 0xCC (Jan 5, 2012)

Eclectic12 said:


> I suspect anything that forces retirement saving is going to be exempt and anything that allows the employee to opt out will not be exempt.
> As I say, I have yet to see paperwork or have an HR person call a Group RRSP as "DC pension".


That makes sense. So in my case I fully expect that the group RRSP will not make the company exempt and as a result their matching percentage for contributions to the group RSP will be reduced by exactly the amount they are required to contribute to the ORPP in the best case. In the worst case they will drop the group RSP program entirely. All of that so that the Ontario Liberals can generate funds for infrastructure spending without being directly accused of raising taxes.

Sorry for taking the thread on that little tangent. Back to your regularly scheduled lack of DC pension interest discussion....


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## Eclectic12 (Oct 20, 2010)

fraser said:


> Would any employer who has employees in Ontario and in other provinces want to operate two pension plans? ...


Don't they have to respect the different provincial pension legislation already?



> Employers must register their pension plan in the province in which the majority of the plan members report to work.
> 
> For example, a large company in Nova Scotia might have a pension plan with members employed in New Brunswick. If the majority of the members are employed in Nova Scotia, then the plan is registered here. Nova Scotia must ensure that the plan applies Nova Scotia law to Nova Scotia members, and New Brunswick law to New Brunswick members.


http://novascotia.ca/lae/pensions/regulation.asp


Cheers


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## Eclectic12 (Oct 20, 2010)

0xCC said:


> ... In the worst case they will drop the group RSP program entirely.


Possibly ... I suspect more likely, the worst case is that the employer shifts *all* the matching contributions to the Ontario plan. 

There are a lot of companies already who put all their matching contributions into other pension plans (i.e. DC or DB) while offering a Group RRSP. It may depend on size and what the competition does. I doubt any company wants to hear from their HR "we are the only ones not offering a Group RRSP" when there is such a wide range of cheap choices out there.




0xCC said:


> ... Sorry for taking the thread on that little tangent. Back to your regularly scheduled lack of DC pension interest discussion....


You are one of the few willing to talk about it so no worries from my perspective.


Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... well, I would tell them to sell those Hearmes, Louis Vitton or Coach bags and then they would have plenty. :biggrin: On serious note, they're well educated enough to know that they can apply for social assistance should they end up as a real bag lady/homeless.


Probably ... I just don't understand why one is mastering far more difficult things but is leaving retirement planning to chance based on how "complicated" it is.




Beaver101 said:


> ... again, the limited choices of GICs and (MM, bond, balanced, index) mutual funds in DC plans do not exactly create investment "buzz" like a 200% growth stock like APPL. If you were to offer your employees say, a 20% "guaranteed" growth through XYZ stock, watch how fast they would be willing to get the details of the equity investment arena.


 ... and the ones I've seen chasing the "big buzz" or "I know IT stocks better than my advisor who is getting 12%" have given up investing as they were losing money in six months.

I'm not sure offering a casino bet is an improvement over ignoring what has been made available to them.




Beaver101 said:


> ... at least there is flexibility with a SD-RRSP where you have choices (investment) and control (yearly contributions).


Trouble is ... those who are investing appropriately, using what advice is made available in a DC pension are usually also using their SD-RRSP. Those who aren't seem to either at the mercy of their advisor or aren't doing anything useful with the RRSP.

IAC ... most DC pensions I'm familiar with, one has to contribute to them so it's not a question of DC versus SD-RRSP but more a question of why use the DC choices so badly.




Beaver101 said:


> ... [ability to transfer funds after a year from DC to SD-RRSP] ... that's a nice feature to have but I don't, not in my DC plan.


A nice way one can counter the limited choices ... but it wasn't in the DC pension that was mistakenly offered to me. Great investment choices, BTW - multinational company but only four MFs offered. A money market one, a Canadian equity, a US equity and a bond fund.


... well, at least they can afford to blame their advisor if their investment plan don't pan out. :biggrin: 



Beaver101 said:


> ... However, there is no talk or discussions whatsover about "personal finances" in lunch or after-work conversations, let alone investments.


I would have hoped with knowledge it would be better ... but from what you say, again it seems to boil down to other factors. 




Beaver101 said:


> ... Any questions about the investments in the DC or savings plans, call the financial advisor (fund company) directly. Any questions about the DC plan itself, read the plan document...


Weird ... most companies I've worked for have had the plan company provide training sessions when the new people signup. Then lots of newsletters, sample asset allocations and reminder articles. HR has usually been the first place to ask the basics, in addition to the plan document.


Cheers


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## fraser (May 15, 2010)

My employer had at the very least annual seminars/sessions on DC investment choice. They went to great pains to ensure that the DC investment options covered the entire spectrum from low MER funds to high MER funds, bonds, balanced, risk, what have you.

Not sure if this was because they wanted to or were advised to. There has been a fair amount of litigation over DC plans-specifically DB conversions, investment choices offered, etc. Most companies who have any sort or HR teams or HR consultants probably know enough to facilitate these meetings as well as send DC plan option and retirement planning guides to employees at least once a year. Litigation can be expensive...especially if you are on the loosing side.

Sadly, attendance was probably less than 30 percent, knowledge retention was probably less.


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> I believe RRSP's are federal so that would be problem number one ... unless the provinces can convince the Feds where they failed with the suggestion of expanding CPP.
> 
> Secondly - *there's lots of articles about how much RRSP room is not used. Rightly or wrongly, likely this means the perception is that few would make use of it.*
> Cheers


 ... and that perception is going to continue with the availability of TFSA. 

The annual March 1st question is - pay down the mortgage first or contribute to the RRSP? Or worry about the March spring break? :biggrin: 

Now you have the TFSA to consider contributing to ... and if you do have the $, what to invest in?


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## Beaver101 (Nov 14, 2011)

fraser said:


> My employer had at the very least annual seminars/sessions on DC investment choice. They went to great pains to ensure that the DC investment options covered the entire spectrum from low MER funds to high MER funds, bonds, balanced, risk, what have you.
> 
> Not sure if this was because they wanted to or *were advised to*. There has been a fair amount of litigation *over DC plans-specifically DB conversions*, investment choices offered, etc. Most companies who have any sort or HR teams or HR consultants probably know enough to facilitate these meetings as well as send DC plan option and retirement planning guides to employees at least once a year. Litigation can be expensive...especially if you are on the loosing side.
> 
> Sadly, attendance was probably less than 30 percent, knowledge retention was probably less.


 ... most likely "advised to" as you have pointed out specifically due to DB conversions to DC plans due to the "fudiciary duty" aspect of pension plans if I recall. No retirement planning guides from my firm's HR department but an annual 1 hour lunch and learn refresher session on DC fund choices and online enrolment/access (for new employees). Definite no "retirement planning guides" or "guidance", one is on their own to guide themselves to whatever path they choose ... retire early or stay in the rat race and continue with the grind. 

Attendance (informational regarding the DB transition to DC plan) at my firm initially was quite good (about 60-70% I estimate) but has waned over the past years ... attendance has dropped dramatically by the 3rd year ... like down to 20%. Maybe everyone has it all figured out. :biggrin:


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> Probably ... I just don't understand why one is mastering far more difficult things but is leaving retirement planning to chance based on how "complicated" it is.


...fear? procrastination? psycho-matters? humans? Again, a million reasons (or excuses). 



> ... and the ones I've seen chasing the "big buzz" or "I know IT stocks better than my advisor who is getting 12%" have given up investing as they were losing money in six months.
> 
> *I'm not sure offering a casino bet is an improvement over ignoring what has been made available to them*.


 ... I don't disagree that there are investment funds choices and not just GICs. Outright stocks in retirement plans may be too dangerous for some cowboy/cowgirls. :biggrin:



> Trouble is ... those who are investing appropriately, using what advice is made available in a DC pension are usually also using their SD-RRSP. Those who aren't seem to either at the mercy of their advisor or aren't doing anything useful with the RRSP.
> 
> IAC ... most DC pensions I'm familiar with, one has to contribute to them so it's not a question of DC versus SD-RRSP but more a question of why use the DC choices so badly.


 ... again, the masses have been educated early in the RRSP game that "safety" or protection of principal capital is the focus at retirement. 



> A nice way one can counter the limited choices ... but it wasn't in the DC pension that was *mistakenly offered to me*. Great investment choices, BTW - multinational company but *only four MFs offered. A money market one, a Canadian equity, a US equity and a bond fund*.


 ... nice "mistake" here if there is such a thing. :biggrin: So how do you cope with that many fund choices of 4 ????! :biggrin: 




> I would have hoped with knowledge it would be better ... but from what you say, again it seems to *boil down to other factors*.


 ... yes as we're all different with different set of circumstances, different way of thinking, different knowledge (or don't want to know) levels, etc.



> Weird ... most companies I've worked for have had the plan company *provide training sessions **when the new people signup*. Then *lots of newsletters, sample asset allocations and reminder articles*. HR has usually been the first place to ask the basics, in addition to the plan document.


 ... not my company, no 1-to-1 training sessions for new hires. Only an annual company-wide lunch and learn seminar. Lots of newsletter and reminder articles would be nice but nope, only quarterly ? I can't even recall as by the time the newsletter becomes available it's outdated and usually it's re-cycled. 

Sample aa model/retirement projection is the same engine for all companies - but one can play with different set of numbers to one's heart's delight ... I pretended I can retire with a millino buck$ instead of a bag-lady. :biggrin:

Cheers[/QUOTE]


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## sags (May 15, 2010)

I would bet that a study of people who retired with only their own capital during the last 15 years, would show that many have not fared very well.

It is all well and good to project "numbers" forward during a long bull run in equities...........but there have been several major and lengthy downturns in stock markets since 2000.

My neighbour, in his 80s..........recently told me that he withdrew the last of his retirement money last year. Stock market downturns took a toll on his savings.

Although I may have invested less money than my neighbour, I won't suffer the same fate. 

My pension "could" get reduced.........but it will never be totally eliminated, because pension capital is held separately from employers and regulated.

My neighbour probably should have bought an annuity when he retired, but people don't like to hand their money over for a monthly payment.

I wonder.............did he believe he could do better managing the money himself ?


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## fraser (May 15, 2010)

The people who got burned badly in the downturn are those that got cold feet, cashed out, and put their money in term deposits, etc.

Markets rebound.

I think one of the biggest variables in a DC or a do it yourself pension is sequence of returns. If you retire after a good bull market, that we have recently enjoyed, and re-allocate your resources to reflect a retirement 'profile' it is possible to do very well. If you retire immediately after your resources are depleted by a bear market a la 2008 then your retirement resources would like altogether different.

Just look what has happened to the level of DB funding. On average, it has gone up substantially over the past three years because of the bull market.


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> Eclectic12 said:
> 
> 
> > it wasn't in the DC pension that was mistakenly offered to me.
> ...


Had there been no mistake ... I would have stayed in the DB pension versus converting to the DC pension. 

Putting the lack of investment choices aside, I did not see how it was in my best interests to go from 6% contributions (3% employer, 3% employee) for a fixed formula payout to a 2% contribution one (1% employer, 1% employee) for expensive MFs.




Beaver101 said:


> So how do you cope with that many fund choices of 4 ????! :biggrin:


I did not have to ... after sitting through the presentation, I discovered that as I was below a manager - I did not qualify for the DC pension.

[ Never mind the savings from dropping the guarantee plus slashing the employer contribution rate - there was big savings from providing no pension to those under the manager level. :biggrin: ]


Cheers


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## bgc_fan (Apr 5, 2009)

sags said:


> My neighbour probably should have bought an annuity when he retired, but people don't like to hand their money over for a monthly payment.
> 
> I wonder.............did he believe he could do better managing the money himself ?


I remember a story about someone in the PS who decided to cash out the pension and start investing on their own (this during the original tech boom). Long story short, it didn't end well.


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## zaphod (Apr 21, 2015)

A couple of things to add - DC plans aren't pension plans, they are savings plans. With DB plans you retire with a specific pension such as 2% X (Years of Service) X (Average salary over last 5 years). With a DC plan you retire with what you earned and that may not be enough. In 1998 people wanted to be able to invest in tech stocks in their DC plan since any idiot could double their money every month with the latest tech stock IPO. We all know how that turned out.

Many DC schemes have relatively low contribution rates compared to DB plans. Teachers in Ontario currently pay 13% of their salaries to their plan which is matched by the government. How many people in DC schemes save over 20% of their salary every year?

DC plans are more expensive to administer since they are millions of individual accounts compared to one account. And investment management fees are often much higher.

There hasn't been a lot of discussion in this thread about pooling of risks. One of the biggest advantages of DB plans is the pooling of longevity risk. With a DC plan you run the risk of outliving you money so, ideally, everyone should save as if they will live to be 100. But that means that a large majority of people will oversave - that oversaving is as much as 25% on average. The other pooling is market timing - if you are lucky enough to retire after a long bull market you are good, but what about those folks who retire at a market trough? With a DB plan that is smoothed across age cohorts.

However there are some advantages to DC plans. Portability is a big one but so is the lessened risk of intergenerational inequality. In a big DB plan you run the risk of overpaying so that an older (or younger) generation makes out ok - you don't have that risk in a DC scheme.


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> Had there been no mistake ... *I would have stayed in the DB pension versus converting to the DC pension. *
> 
> Putting the lack of investment choices aside, *I did not see how it was in my best interests to go from 6% contributions *(3% employer, 3% employee) for a fixed formula payout to a 2% contribution one (1% employer, 1% employee) for expensive MFs.
> 
> ...


 ... okay, I'm confused ... did you stay in the DB plan (safe-smart) or elected to move to the DC plan (trying-to-be-smart)? :biggrin: 

If it's the latter case based on the fact that you didn't qualify for the DC plan, you were lucky-smart as you had to sit in that presentation all that time only to figure out you only had 4 funds choices? Weren't you supposed to be reading the "informational" DC plan document first? :biggrin: :biggrin:


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## Beaver101 (Nov 14, 2011)

zaphod said:


> A couple of things to add - *DC plans aren't pension plans, they are savings plans*. With DB plans you retire with a specific pension such as 2% X (Years of Service) X (Average salary over last 5 years). With a DC plan you retire with what you earned and that may not be enough. In 1998 people wanted to be able to invest in tech stocks in their DC plan since any idiot could double their money every month with the latest tech stock IPO. We all know how that turned out.
> 
> Many DC schemes have relatively low contribution rates compared to DB plans. Teachers in Ontario currently pay 13% of their salaries to their plan which is matched by the government. How many people in DC schemes save over 20% of their salary every year?
> 
> *DC plans are more expensive to administer since they are millions of individual accounts compared to one account.* And investment management fees are often much higher..


 ... do you have a choice if your employer determines the transition of DB plan to a DC one? These days, private sector employees would consider themselves to be ever so lucky to even have a DC "pension" plan where the employer provides a matching contribution. 

Interesting that you view DC plans are more expensive to administer than DB plans when employers these days finding every way for cost savings and shifting some of the risk burden to employees.


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## OnlyMyOpinion (Sep 1, 2013)

zaphod said:


> DC plans aren't pension plans, they are savings plans.


Well no - money purchase or defined contribution plans are pension plans. They do have different characteristics (and weaknesses) as you point out, but from the perspective of being a registered pension plan with lock-in and withdrawl provisions, pension credit, etc. they are a pension plan. 
But if you want to consider an RRSP a savings plan (albeit registered and tax-deferred) I'd buy that.


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## fraser (May 15, 2010)

My guess is that many people spend FAR more time shopping for a car or some other household item such as a tv than they do understanding/optimizing their DC or RRSP decisions. 

I have ZERO sympathy for these people. You can't fix stupid.


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... okay, I'm confused ... did you stay in the DB plan (safe-smart) or elected to move to the DC plan (trying-to-be-smart)? :biggrin:
> 
> If it's the latter case based on the fact that you didn't qualify for the DC plan, you were lucky-smart as you had to sit in that presentation all that time only to figure out you only had 4 funds choices? Weren't you supposed to be reading the "informational" DC plan document first? :biggrin: :biggrin:


Yes you are confused ... or maybe it's that I have been hitting the highlights without enough detail. :biggrin:


Chronologically, it was ... receive the invitation to the presentation to "help" decide between keeping the DB pension or switch to the new DC pension as I was grandfathered in the DB pension. Attached was the summary of DC investment choices, which biased me against switching when I read the choices.

At the presentation, the agenda was "what is a DB pension", "what is a DC pensions", "what are the pros/cons" and "here's a rigged comparison to suggest they are the same (where the employee adds 2% of their own money and is disciplined to contribute to their RRSP)". Based on the difference in contribution rates, my decision to stay in the DB pension was confirmed.

While helping a co-worker who was thinking through the same question, I found a note that identified only managers and above would have a DC pension.


Bottom line is that the mistake was that I did not have the option of leaving the DB pension.




Beaver101 said:


> ... do you have a choice if your employer determines the transition of DB plan to a DC one?


YMMV ... the key here is the employer was not shutting down the DB pension but capping who could join. 

A hire date before a set date meant a DB pension for everyone, after that date meant only certain levels (managers and above) had a DC pension. The ones with a choice were managers above who were already in the DB pension.


I'm not sure why the companies looking to save money aren't shutting down their DB pensions (it costs more to run two) but I've read of few DB pension shutdowns versus a lot of "as of this date instead of joining the DB pension, the employee joins the DC pension".




Beaver101 said:


> ... These days, private sector employees would consider themselves to be ever so lucky to even have a DC "pension" plan where the employer provides a matching contribution.


Why "these days"?

This was done in the early 90's where the new employees for four levels of jobs hired after a set date would have 0% employer contributions *for anything* instead of 3% to the DB pension.


Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> Yes you are confused ... or maybe it's that I have been *hitting the highlights without enough detail*. :biggrin:


 ... the latter part for sure. :wink: 



> ...
> Bottom line is that the mistake was that I did not have the option of leaving the DB pension.


 ... okay, got it now.




> YMMV ... *the key here is the employer was not shutting down the DB pension but capping who could join. *
> 
> A hire date before a set date meant a DB pension for everyone, after that date meant only certain levels (managers and above) had a DC pension. The ones with a choice were managers above who were already in the DB pension.


 ... correct and in my case, all new hires (no distinction between class levels although management may get additional performance bonus) had no choice but start with a DC plan after its effective date. New hires cannot join the DB plan as it has been closed off.



> *I'm not sure why the companies looking to save money aren't shutting down their DB pensions (it costs more to run two)* but I've read of few DB pension shutdowns versus a lot of "as of this date instead of joining the DB pension, the employee joins the DC pension".


 ... I think employers have been "advised" by pension plan "experts" that DC plans are cheaper to run in the long term since the investment risk has been shifted to the employee. 



> *Why "these days"?*
> This was done in the early 90's where the new employees for four levels of jobs hired after a set date would have 0% employer contributions *for anything* instead of 3% to the DB pension. Cheers


 ... what I meant on "these days" is that employees in the private sector are lucky enough even to have a "pension" plan even it's a DC one. I can see if the employer doesn't contribute to a DC plan, then there is no incentive for employees to join the DC pension plan. And generally I say DC plans are inferior to DB plans although I don't have stats to evidence this since I'm not a pension expert/actuary.


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## fraser (May 15, 2010)

I think that the which is better DB or DC really depends on both the plan and on the employee.

In the past, when employees remained with an employer for their working lives DB was the way to go.

Now, when an employee can expect to change jobs multiple times DC is probably better. Why? Because of portability. DB's build up in latter years. If you leave an employer after a few years you really do not get much of a commuted value. In most instances you would have been better of with a DC plan. But.....this involves a bit of time and thought by the employee. Many, it seems, are not concerned enough about their futures or their retirement to spend even an hour a year on it.

https://www.retirementadvisor.ca/re...iclePage=Companypension&learningMenu=articles


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## Beaver101 (Nov 14, 2011)

fraser said:


> I think that the *which is better DB or DC really depends on both the plan and on the employee*.
> 
> *In the past, when employees remained with an employer for their working lives DB was the way to go.*
> 
> *Now, when an employee can expect to change jobs multiple times DC is probably better. Why? Because of portability.* DB's build up in latter years. If you leave an employer after a few years you really do not get much of a commuted value. In most instances you would have been better of with a DC plan.


 ...I agree all these points ..... maybe DC plans like it or not, are the only ways of future pension plan designs in the private sector. It also gives me comfort to know that I'm somewhat given control over my own investments under the DC plan (though with limited choices) than to find out the DB plan comes (ie. not guaranteed) out with a shortfall at retirement. 



> But.....this involves a bit of time and thought by the employee. *Many*, it seems, *are not concerned enough about their futures*or their retirement to spend even an hour a year on it.


 ... I don't think it's solely a case of people not concerned enough about their futures - or their retirement - they do worry about it. And there is truth that they just don't give it enough time and thought to it, for whatever reason. My company has just sent a survey (first time since the plan's inception of about 3 years ago, yes that kind of delay) for feedback on the DC plan or specifically the investment choices ... I wouldn't be surprised that far less than half the folks will fill out the survey at this point in time. Lack of interest may be a factor.



> https://www.retirementadvisor.ca/re...iclePage=Companypension&learningMenu=articles


 ... great article and informative site, thanks! 

As for the bonus quiz, :biggrin: I must admit I would most definitely flunk it had I not been forced to pay attention to the new "DC" pension plan transition (for me).


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... Interesting that you view DC plans are more expensive to administer than DB plans when employers these days finding every way for cost savings and shifting some of the risk burden to employees.


I'll have to check the thread because I don't recall saying this. 

I have seen an article quoting a couple of DB pension managers saying that on a total cost basis, the DC is more expensive from a day to day perspective. I'm not sure they are including any emergency top ups ... which seems to be the big motivator to re-evaluate the pension being offered.




Beaver101 said:


> ... I think employers have been "advised" by pension plan "experts" that DC plans are cheaper to run in the long term since the investment risk has been shifted to the employee.


My point is that running two is more expensive. 

The DC plan is going to take a while to gain economy of scale ... so in the short term, it likely costs more. The existing DB plan has lost money inflows from new members to take advantage of bargains. As the DB plan members die off, any investment shortfalls will be magnified, likely causing more top ups to be made.

There was also an article quoting a Mercer (and I think a Towers) pension consultant saying that their customers who have gone the cap the DB plan and have all new employees use a DC plan are typically waiting decades before seeing any level of saving.




Beaver101 said:


> ... what I meant on "these days" is that employees in the private sector are lucky enough even to have a "pension" plan even it's a DC one. I can see if the employer doesn't contribute to a DC plan, then there is no incentive for employees to join the DC pension plan.


I'm not sure where you are going with this ... are you saying that the employees in the early '90s who lost their pension should be happy the managers were able to get a reduced employer contribution DC pension?

Keep in mind that the number of employees below the manager lever who lost the pension likely far outnumbered the manager and up category.




Beaver101 said:


> ... And generally I say DC plans are inferior to DB plans although I don't have stats to evidence this since I'm not a pension expert/actuary.


In this case ... it seems pretty obvious that for those under the manager level, a DB pension with 3%/3% that has no investment risk and little longevity risk beats no pension (i.e. 0%/0%). 

For those lucky enough to qualify for a pension, it also seems clear that the old DB pension with 3%/3% that has no investment risk and little longevity risk beats a new DC pension with 1%/1% where the employee is taking on the investment as well as all of the longevity risk.


No pension or actuarial expertise required ... :biggrin:


Cheers


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## Eclectic12 (Oct 20, 2010)

fraser said:


> My guess is that many people spend FAR more time shopping for a car or some other household item such as a tv than they do understanding/optimizing their DC or RRSP decisions...


Sad ... but from what I've witnessed ... true.




fraser said:


> I think that the which is better DB or DC really depends on both the plan and on the employee.
> 
> In the past, when employees remained with an employer for their working lives DB was the way to go.
> 
> ...


Wow are you negative on commuted value!

Having moved companies several times, I think you are overvaluing the portability by a long shot. 


Comparing the early '90s company I am talking about - how is a commuted value that includes 3% employee/3% employer + investment growth *worse than* 1% employee/1% employer + investment growth? 

Either way ... the funds can be transferred to a combination of a LIRA and RRSP. 
At that point, going forward, one has complete control of the investments.


Keep in mind that one also gets back RRSP contribution room through the pension adjustment reversal (PAR) ... so if one has extra cash, one can add more to one's RRSP than when one was in the DB pension.

Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> *I'll have to check the thread because I don't recall saying this.*
> I have seen an article quoting a couple of DB pension managers saying that on a total cost basis, the DC is more expensive from a day to day perspective. I'm not sure they are including any emergency top ups ... which seems to be the big motivator to re-evaluate the pension being offered.


 ... you didn't say that until now ... it was *zaphod's *post (#50) that I was referring to in my post #52.



> My point is that running two is more expensive.


 ... true but then why would employers transition to DC plans (or add a DC plan) then if not for cost savings as first goal?



> The DC plan is going to take a while to gain economy of scale ... *so in the short term, it likely costs more*. The existing DB plan has lost money inflows from new members to take advantage of bargains. *As the DB plan members die off, any investment shortfalls will be magnified, likely causing more top ups to be made*.


 ... so which method will be more expensive - in the long term since pension plans are for "long term"?



> There was also an article quoting a *Mercer (and I think a Towers) pension consultant *saying that their customers who have gone the cap the DB plan and have all new employees use a DC plan are typically *waiting decades before seeing any level of saving*.


 ... pension experts and their crystal balls heh? :biggrin:



> I'm not sure where you are going with this ... are you saying that the employees in the early '90s who lost their pension should be happy the managers were able to get a reduced employer contribution DC pension?.


 ... no, I'm simply saying that having a pension plan with employer's matching contributions these days is a bonus, even a DC one.



> Keep in mind that the number of employees below the manager lever who lost the pension likely far outnumbered the manager and up category


. ... I'm not in disbelief. There are always extras for "management", particularly, "executives" category.



> In this case ... it seems pretty obvious that for those under the manager level, a DB pension with 3%/3% that has no investment risk and little longevity risk beats no pension (i.e. 0%/0%).
> 
> For those lucky enough to qualify for a pension,* it also seems clear that the old DB pension with 3%/3% that has no investment risk and little longevity risk beats a new DC pension with 1%/1% where the employee is taking on the investment as well as all of the longevity risk*.


 ... totally agree. 



> No pension or *actuarial expertise *required ... :biggrin:


 ... oh yeah, tell that to some people that I came across in that field. :rolleyes2:


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... you didn't say that until now ... it was *zaphod's *post (#50) that I was referring to in my post #52.


 *whew* ... I thought I'd confused everyone ... including myself ... 




Beaver101 said:


> ... true but then why would employers transition to DC plans (or add a DC plan) then if not for cost savings as first goal?


My guess is they were spooked by the size of the top ups (think Nortel) and asked about it. Without thinking through the transition period, a 100% DB to 100% DC comparison was made.

Between dropping the top ups, being able to shift to a lower contribution rate and shifting some of the costs from the DB pension into the MERs of the DC pension ... the numbers looked great.





Beaver101 said:


> ... so which method will be more expensive - in the long term since pension plans are for "long term"?


Those the profit from DC plans say DC plans and those in charge of DB plans say DB plans. I can see lots of costs that would not exist in the DB plan (ex. MERs) and costs that don't exist in the DC plan (ex. emergency top ups).

Then the other key question is who is bearing the cost? A company that's spooked by DB pension top ups probably does not care should the DB pension have a lower overall cost but the company bears the risk.




Beaver101 said:


> ... pension experts and their crystal balls heh? :biggrin:


Depends ... I've seen executives focus on what they want to hear versus reading the fine print.




Beaver101 said:


> ... no, I'm simply saying that having a pension plan with employer's matching contributions these days is a bonus, even a DC one.


AFAICT if it's a DC pension then by definition there will be employer contributions. The only place I'm aware of that there *might* be employer's matching for a DC plan is if the employer is trying to encourage more savings than the base plan amount.

Group RRSP's on the other hand, have both types.


I haven't been surveying the market so I have no idea if the definition of a DC pension has changed.




Beaver101 said:


> ... oh yeah, tell that to some people that I came across in that field. :rolleyes2:


The one's that amaze me are the co-workers who say that when the comparison is rather stark (i.e. 3% or 0%).


Cheers


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ...I agree all these points ..... maybe DC plans like it or not, are the only ways of future pension plan designs in the private sector. It also gives me comfort to know that I'm somewhat given control over my own investments under the DC plan (though with limited choices) than to find out the DB plan comes (ie. not guaranteed) out with a shortfall at retirement.


I'm not sure it matters where one is moving jobs ... when leaving, one is given the choice of transferring to a DIY LIRA and/or DIY RRSP. I'd rather have the larger contribution rates for the DB pension to manage than the smaller DC ones.

Where one stays with the same company until retirement ... then yes, the DB pension could go down the tubes. It would be nice to find some numbers as I know of few DB pensions that have failed or been bought out.


Interesting to read that for all the press that DC pensions get:


> A global study of pension assets by consulting firm Towers Watson shows *96 per cent* of registered pension assets in Canada are held *in defined benefit (DB) *pension plans, while *only 4 per cent are held in defined contribution (DC) plans *...
> 
> the proportion of pension assets held by workers in their DC accounts remains a tiny minority of all pension assets in the country...
> 
> Canada’s division of assets between DB and DC plans has remained virtually unchanged over the past decade, with DC assets shifting from 3 per cent to 4 per cent of all pension holdings between 2004 and 2014...


http://www.theglobeandmail.com/glob...ngly-in-db-plans-study-finds/article22890054/


Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> ... Where one stays with the same company until retirement ... then yes, the DB pension could go down the tubes. *It would be nice to find some numbers as I know of few DB pensions that have failed or been bought out*.


 ... any idea how an employee can find out about the health of a its own DB plan, other than asking HR personnel (aka just messengers, not from heavens though :calm?




> Interesting to read that for all the press that DC pensions get:
> 
> http://www.theglobeandmail.com/glob...ngly-in-db-plans-study-finds/article22890054/


 .. interesting article. I find this particular stats interesting:



> *In the U.S., by comparison, just 42 per cent of pension assets were in DB plans in 2014, while 58 per cent were held in DC accounts*, the study says


 ... huge difference between Canada and US pension designs. 


I also wonder if,



> *The huge Canada Pension Plan, with assets of $234-billion, remains Canada’s largest DB pension fund*, while most other government workers have large scale DB plans, and major DB plans continue to exist in the private sector.


 makes up for the above stats of 96% of registered pension assets in Canada are held in DB plans versus 4% in DC plans.


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... any idea how an employee can find out about the health of a its own DB plan, other than asking HR personnel (aka just messengers, not from heavens though :calm?


I usually ask the finance guys ... though several others at various times have asked the CEO either at the town hall meeting or through the employee web site question box. 

I expect one could ask the HR people who is managing the DB pension and contact them directly. Or one can use Google to keep searching for any mention of it. :biggrin:





Beaver101 said:


> ... huge difference between Canada and US pension designs.


If you do some google searches ... you will find a lot more differences. 

Things like US companies withdrawing from the DB pension to pay executive compensation (ex. bonus/salary), declaring bankruptcy including the DB pension insolvent and to *continue* drawing from the DB pension to pay executives for the windup. The article noted that at the same time, the US gov't had made student loans exempt from the clean slate a bankrupcy creates. US companies buying other companies to layoff the bought employees then pull big money out of the pension as "the future liabilities have dropped" (Ontario's Mike Harris tried to make this an option for Ontario companies).

I also found an article by the Detroit FreePress who through the freedom of information act was able to analyse the GM pension about three years after declaring bankrupcy. The analysis found that despite the claims of a major drop in the investment portfolio being the problem - the investment portfolio loss put the pension at a relatively small loss position (if one can call billions small :biggrin: ). What accounted for something like doubled the pension value loss was executive withdrawals from the pension to pay for other things.




Beaver101 said:


> ... I also wonder if, [CPP] makes up for the above stats of 96% of registered pension assets in Canada are held in DB plans versus 4% in DC plans.


Interesting question ... though at a glance, this does not seem likely.

This article says that in 2012, CPP had $175 billion versus employer based pensions at $1.4 trillion. The employer category likely includes everything so more investigation or details are needed to be sure.
http://www.bnn.ca/News/2013/12/9/Pe...2012-led-by-government-programs-Statscan.aspx

Of note is the pension investment income for 2011. 
CPP wins at 24% then trusteed employer plans at 14.5% and finally individual plans at 5.6%.


Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> I usually ask the *finance* guys ... though several others at various times have asked the CEO either at the town hall meeting or through the employee web site question box.


 ... your finance guys are very smart - let me guess they're not pension specialists/actuaries either...:biggrin:

Hmm .. asking the CEO the question - why didn't I think of that? But was his/her response in your case? Go ask your HR? :biggrin:



> If you do some google searches ... you will find a lot more differences.
> 
> Things like US companies withdrawing from the DB pension to pay executive compensation (ex. bonus/salary), declaring bankruptcy including the DB pension insolvent and to *continue* drawing from the DB pension to pay executives for the windup. The article noted that at the same time, the US gov't had made student loans exempt from the clean slate a bankrupcy creates. US companies buying other companies to layoff the bought employees then pull big money out of the pension as "the future liabilities have dropped" (Ontario's Mike Harris tried to make this an option for Ontario companies).
> 
> I also found an article by the Detroit FreePress who through the freedom of information act was able to analyse the GM pension about three years after declaring bankrupcy. The analysis found that despite the claims of a major drop in the investment portfolio being the problem - the investment portfolio loss put the pension at a relatively small loss position (if one can call billions small :biggrin: ). What accounted for something like doubled the pension value loss was executive withdrawals from the pension to pay for other things.


 ... very interesting, thanks. ... I'll definitely google this further in my spare time.


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## Daniel A. (Mar 20, 2011)

I'm late to this conversation.

Having retired five years ago and collecting my DB pension from a fully funded pension it feels good.
As has been pointed out with changing times DC is the norm these day's. 

Even with my long run with the same company there were worries along the road, had the company sold and that was a real possibility three times and I would have ended up with a commuted value much lower than I would have received had I been in a DC plan.
A DC plan gives a person control the ability to change jobs while maintaining their pension goals where a DB means having to stick with the game come hell or high water.

Our company at one point took over another that had a DC plan, talking with some of those folks about their personal plans it became clear that the money they had was doing well in the DC and they were worry free from the impact of DB pensions.

Most on this board understand that a DB pension is very much tied to years of service where a DC is strictly performance of the markets.

Once retired the problem with DC is that if one has five hundred thousand in a DC plan a year or two drop of market correction can be 10-20 % of their portfolio and at the same time they are still drawing from it reducing it further. Then there is the worry about what markets are doing something I don't need to think about.


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## Beaver101 (Nov 14, 2011)

^


> Once retired the problem with DC is that if one has five hundred thousand in a DC plan a year or two drop of market correction can be 10-20 % of their portfolio and at the same time they are still drawing from it reducing it further. Then there is the worry about what markets are doing something I don't need to think about.


 .. or conversely for those in DC plans (like me), something to think about and do something about then. That's why I'm on this board ... not the primary reason though. :biggrin:


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## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... your finance guys are very smart - let me guess they're not pension specialists/actuaries either...:biggrin:


Finance group was negotiating better rates for both the corporate portfolio as well as the pension portfolio. They weren't as in tune as an actuary would be but they can see how total value performance and are able to separate out what part if coming from investment gains.




Beaver101 said:


> ... Hmm .. asking the CEO the question - why didn't I think of that? But was his/her response in your case? Go ask your HR? :biggrin: ...


Through two CEOs, the responses have had a range of "fully funded", "fully funded but investments look bad ahead", "top up money in the millions are needed", "top ups are approved/scheduled for three rounds to avoid over-reacting" and "good news, the portfolio has recovered to the point of not needing the third top-up".

Depending on corporate culture ... YMMV.


Cheers


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## HaroldCrump (Jun 10, 2009)

Beaver101 said:


> ... creation of more jobs ... in the government of course


Keep in mind that the above mentioned govt. employees will themselves not the part of the ORPP.
No, ma'am, they will be part of the gold-plated ON PSPP.
Manage pennies for the serfs & get paid like barons



> And who will be overseeing the soundness of this ORPP?


Probably a new governing and oversight committee, made up of insiders, lobbyists & family members.



> Instead of creating an ORPP, why not just expand RRSP contributions?


Because it _*needs*_ to be mandatory.
If a voluntary program sufficed, then there is already the newly expanded TFSA, good ol' RRSP, SPP, and many other available programs.


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## Beaver101 (Nov 14, 2011)

^ +1, +1, +1


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