The Colleges of Applied Arts and Technology pension plan’s plan to share its expertise with as many Canadian workers as possible nabbed it the award for pension performance at Benefits Canada’s 2018 Workplace Benefits Awards in Toronto on Oct. 11.You can see CAAT Pension Plan's small team here. Led by Julie Cays, the CIO, they have done a great job on asset allocation and finding good external managers across public and private markets to carry out their strategy.
With a backdrop of strong fund performance in its main plan, as evidenced by its 118 per cent going-concern funding as of Jan. 1, 2018, the CAAT is seeking to grow the number of employers and employees it serves. In May 2018, it launched the DBPlus pension, a secondary plan design that employers and other plan sponsors can join as a simple method of offering a defined benefit pension to employees.
“We’re not growing because we have to grow, we’re a very strong sustainable pension plan,” says Derek Dobson, chief executive officer of the CAAT. “But we’ve been listening to the industry and to employers and governments, and there seems to be a gap and we’re in a position to help fill that gap. So growth will help us make our plan stronger but also increase coverage, reduce risk, help employers and help members.”
The DBPlus design provides its members with lifetime retirement income and survivor benefits, with inflation protection. The fixed contribution rates range from five to nine per cent of employee contributions, matched by the employer. It allows plan sponsors with fewer resources to allocate towards retirement readiness the chance to benefit from the CAAT’s long-standing experience in institutional investment, as well as the more complex return-seeking methods it can employ.
The first employer, Torstar Corp., to join the DBPlus plan recently finalized its transition, moving its eight DB pensions to the new model and growing the CAAT’s overall membership by 3,000. Indeed, some employers have also recently joined the original CAAT plan, including the Youth Services Bureau of Ottawa in 2017 and the Royal Ontario Museum in 2016.
Underpinning its strong membership growth is the plan’s investment expertise. Its small team recommends an asset mix to its board of trustees that’s based on asset-liability modelling studies it conducts every few years, according to the award entry. External investment managers then assist in implementing the strategy, which results in the production of a diversified portfolio with three key category strengths: return-enhancing, inflation sensitive and interest-rate sensitive.
Read the full list of 2018 Workplace Benefits Awards winners here. And stay tuned in the coming days to learn more about each of the winners.
Back in March, I discussed how CAAT Pension hit 118% funded status and noted the following:
[...] if you look at CAAT's 2016 Annual Report, you will see their long-term performance is solid and the plan is jointly sponsored and they have implemented a shared-risk model which allows them to increase the contribution rate or cut benefits (typically partial removal of inflation protection) when the plan runs into a deficit. This is the main reason why the plan's funded status is excellent.In June, CAAT introduced DBPlus, a new defined benefit design for those who work part time or on contract:
Despite its solid funded status, CAAT decided to remain prudent, kept its discount rate at 5.6% and is building a reserve, a cushion which will come in handy if another crisis hits its assets and liabilities.
CAAT's small investment team led by Julie Cays has done a great job delivering excess returns over the last five years and longer. They work with a handful of external managers to build solid relationships and leverage off these relationships to build their internal capabilities and co-invest alongside them.
As stated above, "CAAT Plan is open and ready for growth in membership where it is beneficial". And if you ask me, all educational plans in Canada and non-profit organizations should really carefully consider joining CAAT's members.
Designed to meet the unique needs of other than regular full-time (OTRFT) employees, DBplus is an easy-to-understand defined benefit (DB) pension plan with a fixed contribution rate for members, matched dollar for dollar by employers.You can read all about CAAT's DBPlus here. Below, you will find all the relevant information:
DBplus comes into effect on January 1, 2019, and is designed to pay a higher lifetime pension to members who work other-than-regular-full-time (OTRFT) hours. DBplus improves equity between member groups, and easily accommodates the transition to full-time employment.
Designed to meet the unique needs of other than regular full-time (OTRFT) employees, DBplus is an easy-to-understand defined benefit (DB) pension plan with a fixed contribution rate for members, matched dollar for dollar by employers. As a member of the CAAT Pension Plan who works part-time or contract, your DBplus lifetime pension is based on your actual earnings each year, rather than an annualized average over a five-year period.DBPlus is a great idea and one that I think other provinces should carefully consider or just contact CAAT directly to say you're interested.
The focus of DBplus is on maximizing your lifetime pension and providing similar value per contribution dollar as the current Plan design. In fact, in DBplus, the average member can expect an 800% return on their contributions in pension payments - that’s $8 in pension payments for every $1 in contributions.
A change for OTRFT members on January 1, 2019
All OTRFT employees who are CAAT Pension Plan members will begin earning a pension under DBplus on January 1, 2019. You don’t have to do anything – the switch will be automatic. The pension you have earned to January 1, 2019 will still be there for you. In fact, it will continue to grow every year until retirement.
If DBplus applies to you, you’ll receive a letter from the CAAT Plan in the fall of 2018. It will provide you with the information you need about the transition to DBplus, and what it means to your pension. At the same time, we’ll launch a new Pension Estimator, so you can calculate your combined pension from the current Plan design, and DBplus, at any retirement date you choose.
You don’t have to do anything – the switch will be automatic.
OTRFT employees who haven’t joined the CAAT Plan still have the option to join DBplus by the CAAT Pension Plan at any time during employment.
DBplus provides a secure lifetime income in retirement, plus so much more
DBplus is designed to maximize the lifetime pension you can earn.
In the current Plan design, OTRFT members typically: earn lower pensions as a result of shorter service; do not reach milestones to receive an early unreduced pension; and are more likely to retire at or after age 65. Also, they rarely take advantage of the bridge benefit, available to members who retire early. Instead of having these features, DBplus has been designed so that more of your contributions dollars are used to build your annual lifetime pension.
I just learned of this initiative, it sounds a lot like OPTrust Select but targeting a different group of people.
The point is this, however, these pension plans are using their expertise to address a demand for DB pensions out there. A lot more initiatives like this are needed and this on top of enhancing the CPP which I'm a huge proponent of.
I realize markets are moving and all my buddies want me to focus on markets, not on pensions. I won't let you down but you will need to wait till Friday for me to collect my thoughts as there is a lot to cover.
But the brutal selloff on Wednesday just reminds us all how defined-contribution (DC) plans are not the answer to the looming retirement crisis. They are too vulnerable to the vagaries of public markets.
Do you really want to be picking stocks in this environment or would you rather have your retirement professionally managed by pension fund managers who invest across public and private markets directly and through top external managers?
That's what CAAT, OPTrust, CPPIB and all of Canada's large pensions offer their members, peace of mind knowing their retirement is being managed properly.
And after watching The Pension Gamble on Fronline PBS last night, you realize how lucky Canadians with a good DB plan are. I didn't agree with everything on the show but clearly there is a huge problem with some state plans in the US.
Below, learn about how DBplus member’s contributions work to provide a secure lifetime pension and other valuable benefits and the advantages beyond the secure, defined benefit pension that DBplus provides to members.
Lastly, go inside the moment the volatile fight over teachers' public pensions in Kentucky took a surprising turn in this excerpt from "The Pension Gamble." That was a very chilling scene.