Canada: Something For Nothing? Your Pension Just Got Better.

IN TODAY'S GOOD NEWS DEPARTMENT: DBPLUS JUST ADDED ANOTHER +

Effective January 1, 2025 (yes, 2025), participating DBplus pension plan members will receive a 1% increase in their annual pension factor.* This is great news because 1) DBplus plan members will get even better pensions when they retire and 2) in the meantime, their contributions stay the same.

When your firm joins CAAT's defined benefit pension plan (that's DBplus), you and your employees immediately start making matching contributions to their pension.

Today, those combined contributions are multiplied by 8.5% (*the pension factor). And the resulting number is the amount of annual pension each of your employees is guaranteed to receive in retirement.

On January 1, 2025, the annual pension factor for DBplus will rise from 8.5% to 9.5%.

This means DBplus pensions will grow more than 10% faster.

Here's how this works for a lawyer on your staff. Nala is a 29-year-old associate and your firm just joined DBplus. You and Nala will jointly contribute to her pension plan during 2024 through payroll deductions. Let's say those combined contributions add up to $10,000 by the end of this year. Applying the pension factor of 8.5% to those contributions means Nala will have earned $850 worth of annual retirement pension.

But after January 1, 2025, the new pension factor of 9.5% means those same joint contributions of $10,000 will earn $950 worth of annual pension—in addition to the $850 from 2024. That's a significant increase in terms of pension earned, with zero impact to Nala's present day cash flow—or your bottom line.

PRUDENT MANAGEMENT PUTS CAAT IN GREAT SHAPE

Ready for some more good news? A recent actuarial valuation determined the CAAT Plan was 124% funded, meaning there's $1.24 set aside for every dollar promised in pension. CAAT's internal funding policy specifies six levels of Plan financial health. The policy is designed to build Plan reserves and determine when additional benefit enhancements can be granted. Thanks to that solid 124% funding status, Plan governors approved the increase to the DBplus pension factor from 8.5% to 9.5%. So great news if you're a DBplus member—and if you're not, perhaps it's time to take a closer look?

DELIVERING THE RETIREMENT SECURITY CANADIANS WANT

You'll note it's DB in the name, not DC, and that's it in a nutshell. Unlike traditional defined contribution plans, DBplus is a defined benefit plan that provides secure, lifetime pension income with survivor benefits.

Originally created for the Ontario college system, the CAAT Plan today serves more than 360 participating employers in 17 industries and has more than 90,000 active and retired members across Canada. All the investment management is done by professionals. Which is a valuable plus (no pun intended) because finding time to navigate unpredictable markets isn't priority #1 for most lawyers, and probably shouldn't be.

BENEFITS FOR EMPLOYERS (MANAGING PARTNERS, HR LEADERS AND, YES, YOU)

Employee retention Running out of money in retirement is the biggest fear Canadians cite when they take a sober look at their retirement readiness.¹ By offering DBplus, you eliminate that anxiety, and make your firm a more attractive landing spot for talented lawyers. A 2021 survey indicated that more than 70% of Canadian workers would forego a pay hike in favour of a workplace pension, and nearly 80% say they'd switch jobs for a better pension plan.²

What's more, when asked about the most desirable features of a workplace pension plan, most Canadians identified qualities traditionally found in a defined benefit pension: monthly, predictable retirement income for life that is adjusted for inflation.³ DBplus delivers that.

BETTER OUTCOMES

Research has shown that defined benefit pension plans like DBplus can provide twice as much income in retirement as group RRSP and defined contribution plans, for the same cost.⁴ A 2018 study by the Health Care of Ontario Pension Plan found that, on average, every dollar contributed to a defined benefit plan adds up to $5.32 in retirement income. That's more than twice the payout of the average Group RRSP or defined contribution plan. Read more about this.

Low cost When your firm participates in a defined benefit pension plan, the cost is shared with thousands of other Canadians. This can result in lower management fees, allowing more of the actual contributions to grow into reliable pension income.

EASY ADMINISTRATION

DBplus is flexible and simple and frees you of the risks, costs, and administrative effort of operating your own defined benefit plan. You pick the contribution rates (typically 3%-5% of salary) and have the option of selecting different rates for different types of staff (lawyers vs. support staff, for example).

Footnotes

1. CAAT Pension Plan, 2023, "A better pension matters: the attraction and retention strategy every employer should be thinking about."

2. Healthcare of Ontario Pension Plan and Abacus Data, "2021 Canadian Retirement Survey," May 2021.

3. Canadian Public Pension Leadership Council, "The Pensions Canadians Want: Perceptions of Retirement (2016–2022)".

4. Healthcare of Ontario Pension Plan, "The Value of a Good Pension," 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.