A passion for using Excel files to model financial trends led Toronto-based Malcolm Hamilton to the uncomfortable realization, in the mid-1990s, that DB plans were not going to work.
He developed a knack for modelling while earning his bachelor’s and master’s degrees in mathematics at Queen’s University and McGill, respectively, in the early 1970s. Hamilton ended up applying his skills to the pension industry after taking the actuarial exams on a whim.
“I got the best scores in Canada and realized, Maybe I’m good at this,” he recalls.
He spent five years at Sun Life Financial before moving to Mercer, where he has been a partner for 32 years. While with Mercer, Hamilton began to explore what might happen to DB plans.
“I’d set up spreadsheets to experiment with different types of DB plans in various scenarios,” he remembers. “The longer I made the projection period, the more unstable the plans became. In the long term, they either ran out of money or accumulated large, unusable surpluses. ”
Armed with that suspicion, Hamilton soon became an advocate for changes to private pensions in Canada. But it wasn’t the first time he had rallied for change: in the ’90s, he was part of a group of industry thinkers who advocated reforming the Canada Pension Plan (CPP), such as the creation of the CPP Investment Board.
“We made a number of changes that have left the CPP in a much stronger position today than other systems around the world,” he says.
Over the years, one of the biggest changes that Hamilton has seen in the pension industry is the gradual decline of DB plans.
“Years ago, they were thought to be growing. Instead, there has been a gradual but significant decline, [so that] DB plans are now seen as anachronistic.”
Hamilton believes that existing DB plans have a better shot at meeting their pension obligations if they become target benefit plans.
“The current DB plan tells members that they will get a specific benefit and that the sponsor will guarantee it. But the guarantee is just not sustainable,” he explains. Target benefit plans remove that guarantee and instead have a specific benefit goal for each member that the plan sponsor tries to deliver.
If the pension fund performs as expected, members get the target benefit. If the experience is better or worse than expected, benefits are adjusted up or down in a gradual and reasonable way.
“The message is quite straightforward,” he says. “The plan will try to deliver the target benefit but reserves the right to pay more or less depending on the circumstances. I think employees can live with that, and it makes pension plans much more resilient.”
Midway through his long consulting career, Hamilton began speaking regularly about pension issues to satisfy his intellectual curiosity.
“I have an interest in exploring how things work. If I hadn’t been a consultant, I’d have been a professor,” he says. But his public speaking skills didn’t come naturally—or easily.
“When I started speaking, I hated reading transcripts of what I said. It so horrified me that I decided to do better,” he recalls. So when he was in his 40s, for five years, he wrote out each talk—sometimes spending up to 90 hours preparing for a 30-minute speech.
“It took a long time to get the early ones right. It was the feeling of accomplishment and pride when I got it right that kept me going.”
Hamilton is currently “drifting into retirement” by cutting back his hours with Mercer, planning to be officially done working by the end of 2012. He has no formal plans for post-work life and is happy about that.
“Most of my life has been planned, and I think I’ve planned enough. I want to see what opportunities come up and how bored I get.”
Leigh Doyle is a freelance writer in Toronto. leigh.doyle@gmail.com
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