There’s no denying that many defined benefit (DB) plans have been getting bad press (think General Motors) as of late. On a positive note, however, DB plans have adapted to better meet plan sponsors’ and plan members’ needs. Could the private sector learn any lessons from the public sector model?
Allan Shapira, a senior actuary and principal with Hewitt Associates, made the case for public sector DB plans and their applicability to the private sector at the first annual DB Summit: Securing Plan Stability, held on Nov. 18 in Toronto and hosted by Benefits Canada.
Shapira examined eight key elements of Canadian public sector DB plans that the private sector could look to emulate. These include the importance of pensions in the employment deal, mandatory participation, cost-sharing through member contributions, self-adjusting mechanisms, scale, pension portability, plan governance and member communication.
He also noted the importance of member communication. Participation in the governance process of a public sector plan creates a higher level of communication, he said. Public sector plans typically have comprehensive websites, tools and transparency. Plan members, he said, are better informed—or at least, less misinformed.
However, while many of these elements could easily be transferred to a private sector plan, that is not the case for pension portability. “The current DB model does not fit the new workforce, where individuals change jobs more often.” A reciprocal arrangement of some sort, he said, would make it easier to combine pensions when an individual changes employers.
Shapira also emphasized the importance of creativity and recognizing the role that DB plans can play. “Giving up on DB is not an option.”
Other topics covered at the summit included managing risk through liability driven investing, securing securities lending and investing in emerging markets. The summit concluded with a plan sponsor panel discussion on “Adapting to Changing Times.”
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