During a panel discussion at the Canadian Investment Review’s 2024 Global Investment Conference in April, three pension plan sponsors shared their perspective on plan design and the changing patterns for employees close to retirement.
Nearly a decade ago, Via Rail Canada Inc. began allowing payments of lump sums to individuals up to age 65 to minimize pension risk, said Francois Quinty (pictured centre), director of investment management at Via Rail Canada. The organization estimates this measure has allowed it to settle about $100 million in excess outflows.
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“The logic there was again to address the ratio of liabilities to the operating company, but also there’s no point in paying an insurer to offload that risk. We thought it was more logical to offer the option to employees that clearly wanted it.”
Also speaking on the panel, Nora Lamb (pictured right), director of pensions and savings at Suncor Energy Inc., said the organization faced a similar pattern, in which employees have attempted to extract their savings before their actual retirement. The plan sponsor is reviewing potential solutions to this issue, including potentially going to market for annuities. While there has been an uptick in early retirement, Lamb said some employees are staying in the workforce past age 71.
The energy company’s retirement plans — including a DB plan and a defined contribution plan — currently have 27,000 plan members, 43 per cent of whom are retired. Suncor’s plans have roughly $10 billion in assets, the majority of which are in the DB plan.
Leona Fields (pictured left), director of pension fund at York University, said her team oversees a hybrid model consisting of a defined contribution plan with a minimum defined benefit guarantee based on years of service and salary, operating under one investment policy for all plan members. The plan counts roughly 10,000 members, more or less evenly divided between and active members and retirees. “Professors tend to work as long as they can and basically are forced to retire at 71.”
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Since the 1990s, Via Rail’s employee population has downsized and the company maintains legacy DB plans, said Quinty, noting most new unionized employees join a hybrid pension plan and non-unionized employees are enrolled in a DC plan.
“We have one active employee for every two retirees and that expresses itself in our cashflow negative profile, so the net of contributions coming in and benefits and expenses going out is around 5.5 per cent of our assets annually. We’re at best maintaining our size but more likely slowly shrinking because we’ve de-risked and our return expectations are modest.”
The transportation company holds an extremely conservative investment approach due to a stable funding position and a significant surplus. More than half (52 per cent) of its investments are in traditional fixed income, matched to the liabilities of the plan. “We have really no incentive to try to re-risk the plan and generate higher returns at this stage given our maturity profile.”
Conversely, York’s investment portfolio includes a 25 per cent allocation to real assets and 15 per cent to alternative credit with limited liquidity, said Fields, adding it also allocates 40 per cent to equities that require a monthly review indicating how much of the portfolio will be redeemed. Typically, the monthly redemptions from the equity portfolio are between $5 million and $10 million, she noted.
Read more coverage of the 2024 Global Investment Conference.