© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the December 2005 edition of BENEFITS CANADA magazine.
Grin and Bear It
 
McCain Foods reports that its pension plans are no cakewalk. Instead, the company is riding out low interest rates, higher DB liabilities and Monsanto fallout.
 
By Andrea Davis

In his role as vice-president, risk management and counsel with McCain Foods Limited in Florenceville, NB, David O’Brien oversees 34 pension plans worldwide. It’s a job that requires a lot of travel and an intimate knowledge of pension legislation and regulations in the 56 countries where the company sponsors plans.

“The plans we’ve set up since I started doing this work four years ago, with two exceptions, have all been defined contribution,” he says. “That’s primarily driven by the fact that the countries where we’re starting new plans have a small employee base and therefore the administration of a defined benefit plan is simply not cost-effective.”

In Canada, McCain Foods sponsors three DB plans for its unionized workers and one DC plan for non-union employees. The company employs 6,000 people in Canada. “In the defined benefit plans, we’re obviously having to come to terms with low discount rates and how they’ve bumped up our liabilities,” says O’Brien. “We just put more money in and life goes on.”

The Canadian DC plan, meanwhile, does not offer plan members investment choice but it does have an underlying defined benefit guarantee. “In one way we’re running a DC plan but it’s like a DB plan in that we control the investments and we’re exposed to actuarial risk,” says O’Brien. “Employees have a specific account and when they retire they can choose either the DC balance or the DB guarantee.”

As such, the communication issues in the DC plan are similar to those in the DB plans.

“We have to communicate to them that it’s not just a DC plan and not just a DB plan but it’s the better of the two, depending on their personal circumstances,” he says.

A low interest rate environment, meanwhile, presents another set of challenges. “Low interest rates put pressure on all pension plans, DB or DC,” he notes.

Overall, O’Brien feels the Canadian regulatory regime for pensions is relatively sensible. Still, it’s not without its problems. “You’ve got the Monsanto nonsense on the DB side and on the DC side the caps are too low on what you can put in and that’s an issue,” he says. “But maybe because I’m Canadian I’ve just grown accustomed to all those problems.”