Decumulation is a growing and challenging issue for defined contribution pension plan sponsors. But one plan sponsor, the University of British Columbia faculty pension plan, has been doing it from the get-go.
“Right from the inception of the plan, we have provided annuity options to members at retirement, so the members, if they choose, can elect to stay in the plan through retirement,” said Orla Cousineau, executive director for pensions.
“That makes our plan very different than most defined contribution plans in Canada.”
Cousineau and colleague Debbie Wilson spoke about the plan’s decumulation options during Benefits Canada’s 2016 DC Plan Summit in February. The current retirement income options include allowing members to leave their funds in the plan or take them out. If they want to leave funds in the plan, they can defer or choose a variable-payment life annuity, registered retirement income fund-type payment account from non-locked funds or a life income fund-type payment account from locked-in funds.
For those who select a variable-payment life annuity, a purchase amount is transferred to an account inside the pension plan and invested into the balanced fund. The monthly pension amount is adjusted once per year based on performance. It’s clear up front that it’s not a level annuity.
All retirees using that option share the longevity risk. “If the group who have chosen the variable annuity option is living longer than expected, then there may be a downward adjustment to their pension,” said Wilson.
But plan sponsors interested in considering those types of arrangement should be aware that the Canada Revenue Agency hasn’t accepted them since 1988.
Another unique choice offered by the plan is the ability to transfer other funds into it or put them back after removing them. “We’ve got a pension plan that employees come to value and trust during their career,” said Cousineau. “A lot of them decide to take up the option of transferring other registered monies into the plan in order to benefit from the plan’s investment options and much lower fees. For many members, it makes more sense than having their monies in retail retirement products.”