Defined Benefit Pension

Defined Benefit Pension

Defined Benefit Pension changes are coming!

Defined Benefit Pension changes are coming later this year. Will this impact your pension? Would it make sense to retire before the changes come into effect?

Canadian plan sponsors (i.e., the companies) are finding it increasingly difficult to fund Defined Benefit (DB) pension plans, which used to rely exclusively on employer contributions to provide benefits to employees. With an aging population, interest rates at historical lows, and inconsistent investment performance, additional contributions are needed to adequately fund DB plans. Adding to that, the current economic instability can make finding the required extra contributions very challenging.

In recent years, many companies still offering DB pensions are insisting that employees contribute to the pension plan to help keep the pension plan sustainable. Most DB pension plans are underfunded, which opens the door for potential reductions (or worse) in pension payments to retirees who choose to allow their former employer to manage their pensions after retirement.

Most employers are aggressively switching to contributory pensions, sometimes referred to as capital accumulation plans. Both sponsors (the companies) and participants (the employees) contribute money to these types of plans, which is often then left to the mercy of the markets. It can be extremely difficult, if not impossible, to determine what your pension may be worth when you retire — regardless of how much you have contributed. Some wonder whether capital accumulation plans will provide sufficient retirement income — will you have enough money to last the rest of your life?

Defined Benefit pensions are also affected by the market turmoil as well as the historically low interest rates.

The Actuarial Standards Board of Canada (www.asb-cna.ca) determines the commuted values of DB pensions. They are implementing changes to the valuation formula to reflect lower interest rates, an aging population, and market instability.

What will this mean to you?

No two pension plans are the same, and many companies have more than one pension plan. Some will be impacted more than others, but they will all be impacted.

Get your most recent pension statement and book a no-obligation, no-cost initial consultation with me and I’ll help you understand your options.

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