# the truth about PRPs.



## the-royal-mail (Dec 11, 2009)

For those who think these new pooled retirement savings plans are a good idea, note this is not a new idea. Check out this article from NZ.

http://www.nzherald.co.nz/kiwisaver/news/article.cfm?c_id=1501206&objectid=10765438

And here's the truth behind why the gov't did this (follow the money):

_The Financial Markets Authority's annual report, released last month, showed 42 per cent - or $43 million - was charged in fees on fund earnings of $104 million for the six default providers of the scheme.

For non-default providers, 28 per cent, or $121 million, was charged in fees on earnings of $432 million, according to the FMA report._

If they wanted to actually help us they should have simply lifted the CPP cap. This PRP thing stinks. Prepare to get lots more spam in your work inbox as they become defacto fund managers, ready to send fees to the banks.


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## HaroldCrump (Jun 10, 2009)

This has been getting a lot of attention recently.
Been discussed on the Lang O'Leary show two days in a row.

These PRPPs or whatever they choose to call it, are completely useless as a retirement savings vehicle.
To begin with, one of the Ps must be dropped from this acronym, because this is NOT a pension.
Secondly, these are simply a high fee version of the Group RRSP.
Group RRSPs provide more flexibility and control to the individual investor, in most cases.
The PRPPs have the worst of both worlds - all the market risk and high fees of managed retirement accounts, without the flexibility of RRSPs.

I don't plan to put one red cent into these.

If this is the best the govt. can do for the pension Have-Nots, I have no interest in this shameless excuse to enrich the financial institutions.

I'll stick with my RRSPs any day, thank you very much.


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## MoneyGal (Apr 24, 2009)

http://www.moneyville.ca/article/1089018--just-what-we-needed-more-unused-pension-space

My former boss and co-author weighs in:

_So this is it? The RPPP raison d’être, was about enabling Canadians to buy their mutual funds for less?

I have a better idea. Why not nudge Canadians to shop at Costco? You can get soy sauce in 950 milliliter jugs, 500 servings of Metamucil in one package, and four-liter containers of my 6 year-old daughter’s favorite chocolate milk syrup. If the point is for Canadians to have more cash when they retire, I think there are much more effective ways of doing that.

I thought the point of this whole exercise was to increase pension coverage? One should not confuse an investment plan with a pension plan. The former is just a collection of money that moves up (and down) with market-linked instruments. The latter is a guarantee, a promise, a life time of security. Canadians need more longevity insurance and old-age protection, similar to the pensions of public sector employees. (I enjoy one myself, as part of my job at York University.)

I suspect the reasons 60 per cent of Canadians do not have a workplace pension – and risk having less cash when they retire – is not because they are buying their pensions at an expensive convenience store instead of in bulk._


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## mind_business (Sep 24, 2011)

I've got to admit I've done very little research on what a PRPP would entail. I did a bit this morning, but didn't find any answers to the following:

1) Is this a true Pension?

2) As with a DB Pension, will a PA (Pension Adjustment) reduce allowable RRSP contribution room?

3) If it's not considered a true Pension, how are the employee contributions handled? Are they handled similar to an RRSP? ie) reduce taxable income?

4) If you're already in a DB Pension, does that exclude you from participating in a PRPP?


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## andrewf (Mar 1, 2010)

I much preferred what the Liberals proposed in the last election (a voluntary opt-out DC plan managed by CPP) as it was in line with what I had already arrived at as the best compromise. Kevin O'Leary drooling over the idea of getting a piece of this market (as if he has a chance) is indication enough of whose interests this scheme is in.

I would also be open to increasing CPP premiums by 6%, allowing benefits to be doubled, so that people get a 50% replacement rate on their first $40k in pensionable income. That is the minimum required to keep people who earned a decent income in their career out of poverty in retirement. It would allow us to phase out OAS over the next 30 years, and beef up GIS for people who did not earn enough in their working years to stay out of poverty in retirement.


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## andrewf (Mar 1, 2010)

mind_business said:


> I've got to admit I've done very little research on what a PRPP would entail. I did a bit this morning, but didn't find any answers to the following:
> 
> 1) Is this a true Pension?
> 
> ...


1 - No. It is just like a group RRSP. It is purely defined contribution.
2 - I imagine this will be the case. But I haven't seen this explicitly stated.
3 - Likely.
4 - No.


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## GregoryWong (Aug 11, 2011)

So I would be contributing to a pool that I have no control over and hope that the management team can build me a sufficient pension. I think I'll pass


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## Charlie (May 20, 2011)

Has anyone seen anything that differentiates these from group RRSPs? Seems to be about the same on the employer admin side...and the only spin I'm seeing is the promise of lower fees. Is that it? Hard to imagine the fees would be less then some of the other low cost options out there....

I'm genuinely puzzled here. Any info would be appreciated...


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## OptsyEagle (Nov 29, 2009)

What I don't understand is that if one can opt out, then how does this help the thousands that don't contribute to or have an RRSP or pension. Obviously they opted out and we are back the same problem.

It sounds like politicing again to me.


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## the-royal-mail (Dec 11, 2009)

I think the goal is to feed more fees to the banks and nothing more. If you follow the money in this scheme that is where it leads. For the end user this is nothing more than smoke and mirrors. Participation in RRSPs is voluntary and the participation/usage rate is around 5% I believe.

People don't understand how to manage their earnings. This won't help them.


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## kcowan (Jul 1, 2010)

the-royal-mail said:


> People don't understand how to manage their earnings. This won't help them.


It is more insidious than that. The default option is to throw their contribution into some FI-driven group PRP!


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## andrewf (Mar 1, 2010)

Charlie, I think the goal here is to be seen doing something. These PRPs are very similar to group RRSP plans. Alberta was opposed to any more substantial action, and Alberta definitely has the ear of this government.

Optsy, RRSPs etc. are all currently opt-in. There is a real difference in participation rates between opt-in and opt-out programs.

TRM, I think you're right. This is one big sop to the financial services industry, which stands to make a lot of money by taking a good 1% of AUM and dropping it on their bottom line.


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## HaroldCrump (Jun 10, 2009)

Take 1% and offer what?
The same ho-hum mutual funds that lag the market year after year.
Instead of the usual 2.5% fees, they charge 2% to the PRPPs - big deal!
Without mandatory employer contributions and without even a single feature of a true pension, this is useless.
To me, it's just another mutual fund scheme with one too many Ps.


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## Charlie (May 20, 2011)

andrewf said:


> Charlie, I think the goal here is to be seen doing something..


I hate being too cynical, but I think you're dead on here. 

If they were truly concerned about people being underfunded at retirement they could make contributions mandatory -- or severely restrict withdrawals before retirement age (as the US does). Those would be highly unpopular moves. So they won't happen. The TFSA have the most generous withdrawal provisions imaginable. And these PRP's will be based on employment earnings and, it seems, will somehow share the current RRSP limits. So what's new?

It's like they're just marketing a low fee product -- and then asking someone else to provide it. Meanwhile, ING (i think) is introducing such a thing without the need for PRP's, and ETF's are widely available... 

I could (continue) to go on and on about why they're pointless...but I think I must be missing something. There must be some thinking behind this (even if I might disagree with it). Can't find any so far. Unless they think that the mere 'newness' of them will spark employers into offering plans.


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## the-royal-mail (Dec 11, 2009)

Charlie, this is complete conjecture on my part but let's suppose that some employers decided to implement a plan like this where they would match their employee contributions dollar for dollar (for instance). If there is enough uptake in the country, could this not benefit people? Is that what the gov't is thinking partly, or was this just a blatant attempt at feeding the banks more fees?

Remember that there was very little time between when they announced their intentions for this plan and when the details were actually released? This whole thing could have been devised on a dinner napkin for all we know.


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## Charlie (May 20, 2011)

Probably that's the idea RM. Put it back on the radar. 

My complaint is that I like simplicity. And I think the same objective could have been achieved with promoting group RRSP's, or potentially offering some sort of benefit / incentive / streamlining for employers to offer those. I just don't see the benefit of a whole 'new' plan (and related paperwork and administration) that couldn't have been achieved using existing structures. Possibly the gov't could have facilitated some massive 'group plan' if that was necessary -- but kept it under the RRSP umbrella????


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## the-royal-mail (Dec 11, 2009)

For sure. Or better yet, as Harold Crump has said here a number of times, why didn't they simply expand the CPP, remove some of the caps and simply ramp up more staff there as required? The broad infrastructure and knowledge for CPP are already in place.

Of course, doing so doesn't give the banks free fee money, which is what I suspect the goal was. Excuse the tinfoil hat but the link posted earlier about NZ's KiwiSaver has only increased my suspicions about this. Epic failure.


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## MoneyGal (Apr 24, 2009)

(on phone, can't quote) ...but the agreement to expand the CPP is not there.


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## Larry6417 (Jan 27, 2010)

Some of the provinces (besides Alberta) opposed "big CPP." Remember that changes to CPP require the approval of 7 provinces. In the short run, raising CPP contributions is a job killer i.e. it raises the cost of hiring someone. Over the long term, the employee pays fully for the increased cost (through lower direct wages). Malcolm Hamilton, an actuary, proposed that CPP allow individuals (or businesses on behalf of individuals) to make defined contributions. Individuals could get the low cost of CPP management while gov't is not on the hook for a DB-like plan. Sask. is ahead of the pack; it already has something similar in place.


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## HaroldCrump (Jun 10, 2009)

Larry6417 said:


> Malcolm Hamilton, an actuary, proposed that CPP allow individuals (or businesses on behalf of individuals) to make defined contributions. Individuals could get the low cost of CPP management while gov't is not on the hook for a DB-like plan.


I don't personally see any benefit of a Defined Contribution plan of any sort.
It doesn't solve any of the core issues.
The core issues in my opinion are (in no particular order) : guaranteed annual income in retirement, inflation indexation, longevity protection, market protection, and mandatory participation/savings.

CPP provides all of the above.

The features of a DCP can easily be replicated with RRSP / Group RRSP.

Instead of DCP, I'd simply like to have more RRSP room.


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## Larry6417 (Jan 27, 2010)

Actually, I see benefits out of a DC-type addition for CPP. Investors get the advantage of low costs. Also, the DC plan on top of CPP could be a "target" plan i.e. assuming "normal" rates of return (whatever that is) you would get a certain monthly amount based on your contribution. In a target plan contributions could be raised slightly (for people still contributing) or benefits decreased slightly over time to make up for poor returns. That's much better than the decrease individual investors would have to take on their own.

P.S. I haven't been able to confirm independently but a guest on the Lang/ O' Leary Exchange claimed that new legislation for CPP had effectively converted it to a target pension i.e. benefits could be decreased or contributions increased to make up for poor returns. That is, expanding CPP won't give people a DB plan because CPP is now "DB-lite."


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## ghostryder (Apr 5, 2009)

the-royal-mail said:


> Charlie, this is complete conjecture on my part but let's suppose that some employers decided to implement a plan like this where they would match their employee contributions dollar for dollar (for instance).



Any employer who wanted to offer a pension to their employees but couldn't afford the overhead could have simply used the Saskatchewan Pension Plan.

http://www.saskpension.com/index.php?page=spp.php

Defined contribution, open to everyone, allows for employer contribution/matching etc.

The gov't isn't really breaking new ground here. They're just copying something that already exists and pretending that they are being innovative.


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## andrewf (Mar 1, 2010)

the-royal-mail said:


> Remember that there was very little time between when they announced their intentions for this plan and when the details were actually released? This whole thing could have been devised on a dinner napkin for all we know.


Well, it was in the CPC platform from the last election, which was probably developed years ago in case of an unexpected election.


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## andrewf (Mar 1, 2010)

the-royal-mail said:


> Or better yet, as Harold Crump has said here a number of times, why didn't they simply expand the CPP, remove some of the caps and simply ramp up more staff there as required? The broad infrastructure and knowledge for CPP are already in place.


If you mean expanding the DB component of the CPP, Alberta (for one) nixed that idea. 

If you're talking about CPPIB managing a DC pool (like the Sask Pension), I see no reason why they would not allow this. The implementing legislation will have to be done at the provincial level, so we may see some provinces create their own provincial DC plans in addition to the private options. It would be a shame not to use the CPPIB, as they already have built up a lot of credibility.


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## andrewf (Mar 1, 2010)

HaroldCrump said:


> I don't personally see any benefit of a Defined Contribution plan of any sort.
> It doesn't solve any of the core issues.
> The core issues in my opinion are (in no particular order) : guaranteed annual income in retirement, inflation indexation, longevity protection, market protection, and mandatory participation/savings.
> 
> ...


I disagree to an extent.

There is room for improvement over (group) RRSPs. Many investors make very poor investment choices. Providing savers with a sensible default investment plan that they can modify if they choose would be a significant improvement over getting employees to fill out a risk tolerance questionnaire and picking a couple mutual funds when they set up their plan. The vast majority of workers do not modify their asset allocations over time or rebalance effectively. And if gradual annuitization were another default mechanism at the end of the accumulation phase, people entering retirement would have something very much resembling a true pension. Perhaps annuitizing gradually over time would help solve the annuity puzzle where savers get sticker shock. For that matter, making it a default choice would also likely reduce the selection bias that drives up prices for annuities today.


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## andrewf (Mar 1, 2010)

Larry6417 said:


> P.S. I haven't been able to confirm independently but a guest on the Lang/ O' Leary Exchange claimed that new legislation for CPP had effectively converted it to a target pension i.e. benefits could be decreased or contributions increased to make up for poor returns. That is, expanding CPP won't give people a DB plan because CPP is now "DB-lite."


It always was, even before the reform. The Government of Canada can't make 100% risk-free real value guarantees. If things went really wrong, Canada could always honour a nominal promise by printing money and reducing the promise through inflation. Not so with inflation indexed liabilities such as CPP benefits.

Now, I don't know how what you suggest would work unless the extra contributions were mandatory (ie, expanding the CPP). If the contributions are optional, then plan participants will look at the expected return and decide whether to participate. If the fund performs poorly, contributors won't stomach much of a increase in contributions just to compensate the losses incurred by those currently drawing pensions. I don't think it would work.


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## Larry6417 (Jan 27, 2010)

andrewf said:


> It always was, even before the reform. The Government of Canada can't make 100% risk-free real value guarantees. If things went really wrong, Canada could always honour a nominal promise by printing money and reducing the promise through inflation. Not so with inflation indexed liabilities such as CPP benefits.


I agree. The gov't could always change the rules before (with the agreement of the provinces). It's just easier to do so now.



andrewf said:


> Now, I don't know how what you suggest would work unless the extra contributions were mandatory (ie, expanding the CPP).


I'm not sure what you're saying when you claim it wouldn't work. It would work for the people who chose to participate. I'm not proposing an all-encompassing "solution" to Canada's pension problems. I'm proposing an option that would help some. Lowering costs always helps investors. I agree that "pooled" plans simply allow financial companies to charge extortionate fees over a larger group. 

CPP was originally designed to replace only about a quarter of the average worker's retirement income. It doesn't work well for higher income workers.



andrewf said:


> If the contributions are optional, then plan participants will look at the expected return and decide whether to participate. If the fund performs poorly, contributors won't stomach much of a increase in contributions just to compensate the losses incurred by those currently drawing pensions. I don't think it would work.


I'm not sure I agree with your reasoning. No one "knows" for sure what the returns on any investment will be. Every investor starts out with the same uncertainty. However, some things are (almost) certain. Higher fees mean lower returns for the investor. Yes, someone could be lucky and pick the one mutual fund that outperforms the index over 30 years, but how likely is that? How likely is the person to stick with that investment over a prolonged period? If you have 2 investors who invest equal amounts in equivalent investments, the one with lower costs will "win" i.e. CPP (due to its low costs) beats any Canadian mutual fund (which is all many Canadians invest in) over time.

Individual investors also face sequence of returns risk. Those retiring in the midst of a horrific bear market face a permanent, immediate lowering of their living standards. If one were in a grouped, target plan (i.e. DC type addition to CPP) that lowering could be gradual and spread out over time and a number of groups to minimize the pain. Would I invest in a plan like that? Of course! I would be happy to have CPP manage some (not all  ) of my money because I couldn't find an equivalent manager for anywhere near the same price. Also, I wouldn't be happy about raised contributions to make up for poor returns, but I'd accept it as the cost of "insurance" that may someday help me.


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## Larry6417 (Jan 27, 2010)

I don't think that pooled plans are a terrible idea. They simply don't address the main problem: DB plans receive preferential treatment under the tax code. See http://www.cdhowe.org/legal-for-life-why-canadians-need-a-lifetime-retirement-saving-limit/15218

Basically, DB plans are allowed to accumulate much more than DC/RRSP plans. The tax code assumes the law of "nines" when it comes to pensions i.e. $9 buys $1 of pension (DB plan contributions are fixed at 1/9 of RRSP limits). However, $1 of pension may actually require up to $18 to purchase. Therefore, people relying on DC/RRSP are shortchanged from the start. Also, losses in a DB plan are treated differently than a DC plan. DB plans are allowed to raise contributions to make up the loss while DC plan contributions are fixed. Also, not to be overlooked, are the way expenses are handled. Expenses administering a DB plan can be charged outside of contributions while expenses in a group RRSP/DC must be charged against contributions i.e. even less money working for investors in a DC plan.

If people are looking for an all-encompassing solution, a lifetime contribution limit, as proposed by the CD Howe institute, may be a good starting point.


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## andrewf (Mar 1, 2010)

Larry, why would anyone voluntary enroll in a pooled plan that has a negative net present value (if it is partially funded) or a significant deficit (if it is a fully funded pension)? Such a voluntary pension could collapse if it performs poorly, as contributors flee. Those drawing pensions would still need to absorb most or all of the adjustment to make the plan solvent again.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> There is room for improvement over (group) RRSPs. Many investors make very poor investment choices. Providing savers with a sensible default investment plan that they can modify if they choose would be a significant improvement over getting employees to fill out a risk tolerance questionnaire and picking a couple mutual funds when they set up their plan. The vast majority of workers do not modify their asset allocations over time or rebalance effectively.


I can't speak for all group RRSP plans, but most that I have seen already have this flexibility.
Yes, you are bound by the number of mutual funds available but they are usually lower fee versions of the same retail fund.
Group plan management companies often provide basic consultation to the members to help them with asset allocation and fund selection.

We don't know how exactly the new PRPPs will be implemented and what the fund selection will be.
Can a PRPP member select any mutual fund out there, like you can in a DIY RRSP?
Probably not.
You would still be limited to a smaller set of mutual funds, albeit larger than what group RRSPs can provide.

Not all, but some group RRSPs allow members to transfer out once or twice a year into their DIY RRSP accounts, providing more flexibility.
PRPPs won't have that.

I don't believe the PRPPs offer that much more over GRRSP to justify all the regulations and bureaucratic superstructure that will be created to implement this.
It will end up costing the tax payers more than it's worth.


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> For sure. Or better yet, as Harold Crump has said here a number of times, why didn't they simply expand the CPP, remove some of the caps and simply ramp up more staff there as required? The broad infrastructure and knowledge for CPP are already in place.
> 
> Of course, doing so doesn't give the banks free fee money, which is what I suspect the goal was. Excuse the tinfoil hat but the link posted earlier about NZ's KiwiSaver has only increased my suspicions about this. Epic failure.


Who do you think is advising them?

Then too, part of the "advice" is probably something along the lines of "don't expand CPP as you don't know how many will take advantage of the expanded program - let private industry which is nimble, take on the risk".


Cheers


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## doc987 (Nov 23, 2011)

PRPPs add more choice but not necesserily any value. IMO, simply "smoke and mirrors" to make people think they are promoting pension fairness. If the government is really serious about every tax payers retirement, the changes need to be both revolutionary and equal across the entire spectrum.
It shouldn't matter if you are self employed, government or private employee. Adding another acronym to the system does nothing except confuse people that are already confused.
Why not just scrap the entire system, ie RRSP, CPP etc...and take 10% of everyones salary up to a maximum of say $100k and make it a DB plan. This way, everyone will contribute in proportion to your salary and have a guaranteed/indexed income in retirement. Keep the OAC/GIC for lower income people. If you want to save on top that, you would be able to invest in a typical non registered account. 
This is a simple yet fair approach in my mind. 
Let me know if I am off base.


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## andrewf (Mar 1, 2010)

Harold, I don't think most group RRSPs will modify your asset allocation over time (unless you invest in a target retirement date mutual fund). As a result, I suspect many people in the last few years of accumulation get surprised by a big bear market. It seems to happen after every crash that people who are close to or have just retired complain about equity losses due to overly-aggressive asset allocations.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Harold, I don't think most group RRSPs will modify your asset allocation over time (unless you invest in a target retirement date mutual fund).


Agreed, they won't unless you ask for it.
However, how do we know that the PRPPs will be any different?
They are a basket of mutual funds as well.

What's to prevent me from choosing Kevin O'Leary's rip off fund with 3% MER that returns 1.5% annualized after fees for the next 20 years?

How does any of this help the average investor?
I think the average investor is better off with either (a) an ETF based couch potato portfolio or (b) Group RRSP with lower fee managed mutual funds.

PRPPs are not mandatory - so they don't solve the savings issue.
PRPPs are not a pension - so they don't provide inflation protection, longevity protection, guaranteed returns (at any rate), etc. like CPP does.

I haven't seen any numbers from the govt. yet on how much this will cost the tax payers in terms of administration and regulation bureaucracy.
IMHO, in the end, this will be just another under-used, under-funded scheme that doesn't solve the retirement crisis and costs the tax payers even more money.


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## Larry6417 (Jan 27, 2010)

andrewf said:


> Larry, why would anyone voluntary enroll in a pooled plan that has a negative net present value (if it is partially funded) or a significant deficit (if it is a fully funded pension)? Such a voluntary pension could collapse if it performs poorly...


Canadians don’t think that way. My proof? Canadians clamour for DB plans even though most plans are in the red i.e. negative net present value. Simple common sense dictates that benefits will be cut, contributions raised, or both. Canadians want some semblance of stability during their retirement years. Given the cost of DB plans, target pensions may be the most that Canadians can reasonably expect. 

Also, what’s the alternative? For Canadians investing on their own, low market returns will force the same hard choices (except with higher management costs, esp. if using mutual funds). Either contribute more or expect to live on less in retirement. Avoiding a DC plan administered by CPP doesn’t change one’s choices. Again, expertise at low cost makes it very hard for any mutual fund to beat CPP over time. In fact, the cost of CPP is low enough that even ETF investors would have difficulty matching costs, esp. for international ETFs. Also, the CPP has expertise in areas that retail investors would have difficulty matching even with ETFs.

The “name-brand” recognition and confidence within the CPP cannot be overstated. I’m fairly certain that CPP would last through my retirement. I don’t have the same confidence in many companies. We’ve seen blue chip companies, like Nortel, fail and swallow their workers’ pensions. Do you think that former Nortel employees would prefer a target pension administered by the CPPIB rather than the broken promises they’ve been left with? A while ago an entire thread was devoted to whether the OP (RedRose) should accept the commuted value of her husband’s DB plan from Postmedia (a company that recently emerged from bankruptcy in a rapidly changing business) or invest it on her own, something the OP was uncomfortable with. Do you think people in similar circumstances would opt for a target pension plan administered by the CPPIB, if such were available? A DC plan administered by the CPPIB providing a target pension would be a great help to many, including myself.


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## kcowan (Jul 1, 2010)

Blue chip DB plans are also at risk. IBM always said that they would adjust their DB payouts for COLA every 3 years or so depending on affordability. The last such adjustment was in 2001 and they have been very profitable since.


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> Harold, I don't think most group RRSPs will modify your asset allocation over time (unless you invest in a target retirement date mutual fund). As a result, I suspect many people in the last few years of accumulation get surprised by a big bear market. It seems to happen after every crash that people who are close to or have just retired complain about equity losses due to overly-aggressive asset allocations.


Yes - most don't but my impression is this is a function of what the company contracted for with the provider. I've been fortunate that half of the DC plans I've been in have offered this option.


Cheers


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## Eclectic12 (Oct 20, 2010)

kcowan said:


> Blue chip DB plans are also at risk. IBM always said that they would adjust their DB payouts for COLA every 3 years or so depending on affordability. The last such adjustment was in 2001 and they have been very profitable since.


Hmmm ... my impression is the number of IBM DB members is capped so I'm not sure why affordability would be an issue.

IAC, as an IBM employee in 2003, a DB plan was not an option. My pension was strictly DC with an optional Group RRSP (my contributions only).


Cheers


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## MoneyGal (Apr 24, 2009)

kcowan said:


> Blue chip DB plans are also at risk. IBM always said that they would adjust their DB payouts for COLA every 3 years or so depending on affordability. The last such adjustment was in 2001 and they have been very profitable since.


But affordability in a DB pension plan is related to the survivorship rates amongst the pensioners and the rates of return in the DB plan investments...not to company profits. 

There would have been no obligation for the company to make an ex parte contribution to the pension plan to top up inflation protection for retirees based on company profitability. 

Company profits are specifically disentangled from DB pension plan results - the only way the company can get out of the DB pension obligations is to declare bankruptcy. So, periods of low or no profitability do not decrease the company's DB pension obligations, just as periods of high profitability do not increase them.


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## andrewf (Mar 1, 2010)

Larry, I thought you were referring to a voluntary DB plan that would make up shortfalls by increases in contributions from accumulators. Now you're saying it's a DC plan administered by the CPPIB. I support that as well.


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## Larry6417 (Jan 27, 2010)

I should have explained myself better. By "target plan" I mean a DC plan that provides quasi-DB benefits *adjusted* for investment returns i.e. no liability for companies contributing on behalf of employees but some stability for employees.


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