OPTrust Launches People for Pensions?

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Jann Lee of Benefits Canada reports, OPTrust shines spotlight on DB model with new campaign:

The OPSEU Pension Trust has launched People for Pensions, an online campaign encouraging its plan members to become informed about defined benefit pension plans and how they support the economy.

People have shifted from having a mindset of pension envy to one where they yearn for financial security but don’t necessarily see the value of a defined benefit plan, says Hugh O’Reilly, president and chief executive officer at OPTrust. He notes the campaign is a chance for plan members to not only educate themselves about defined benefit plans but also share knowledge with colleagues, friends and family.

While most plan members value their plan, there’s still those who don’t understand the multiple benefits a defined benefit model brings and how it compares to other retirement savings vehicles, such as registered retirement savings plans and defined contribution plans, notes O’Reilly.

According to the People for Pensions website, OPTrust will communicate with members through the website, an email newsletter and social media channels, such as Facebook and Twitter. The campaign is also led by a representative from OPTrust who will make several workplace presentations across the province.

While the campaign isn’t necessarily targeted to younger employees, it’s designed to be modern and accessible, says O’Reilly. “It’s an opportunity to educated anyone who’s interested [in the issue]. Our whole organization is member-driven and they believe others should have what they have, a defined benefit plan.”

OPTrust put out a press release on its new “People for Pensions” program:

OPTrust launched the People for Pensions program last week to raise awareness about the overall value of defined benefit (DB) pension plans. Research has shown OPTrust members and retirees place a high value on their pensions and would like to know more about all the benefits of their pension plan.

The People for Pensions program shares information with members and encourages them to share it with their peers, friends and families. This information highlights the benefits of a defined benefit plan versus other kinds of retirement savings vehicles and how the defined benefit model supports the economy. In just three days, the community signed up more than 200 new members.

Members of a defined benefit pension plan can rely on a stable amount of pension income in retirement because payments are based on a formula using years of service, and are paid for life. Unlike retirement savings in a Defined Contribution plan that are directly impacted by ups and downs in the stock market, DB plans use a set formula to calculate pensions. DB plans make investment decisions over a long-term horizon and are structured to weather market volatility.

Any active member of the OPSEU Pension Plan can be a People for Pensions member. Retirees who are drawing a pension from the OPSEU plan and members who are entitled to a future pension can also become a member of the program. Interested people can sign up at www.peopleforpensions.com or call the community lead at 1-800-906-7738 ext 3052.

OPTrust will send information about the defined benefit pension model which program members can, in turn, discuss with their co-workers and others as they see fit. Some people may want to use the information in casual conversations while others may choose to share the information through their own social media channels.

“In addition to providing great service to our members, we are creating conversations that are intended to lead to better retirement incomes for all. Workplace pensions are an integral part of the retirement landscape in Canada but they must be nurtured and sustained,” said Hugh O’Reilly, President and CEO of OPTrust. “This is part of our work of being a Pension Citizen.”

About OPTrust

With net assets of $19 billion, OPTrust invests and manages one of Canada’s largest pension funds and administers the OPSEU Pension Plan, a defined benefit plan with almost 90,000 members and retirees. OPTrust was established to give plan members and the Government of Ontario an equal voice in the administration of the Plan and the investment of its assets through joint trusteeship. OPTrust is governed by a 10-member Board of Trustees, five of whom are appointed by OPSEU and five by the Government of Ontario.

It’s funny, this morning I was thinking how nice it would be to create an App on pensions so people can truly understand the differences between investing in a defined-contribution plan as opposed to a defined-benefit plan.

Part of good governance on pensions — and I know all about this topic, perhaps more than I’d like to know — is communication. It’s the responsibility of the board of directors and senior management to communicate effectively and on a regular basis the activities at their pension.

Here, OPTrust is taking it a step further, openly encouraging its members to educate themselves on the benefits of well-governed defined-benefit plans and to share information with other members.

Let’s face it, most members of any pension plan don’t really have a clue of what’s going on at their pension. They typically only inform themselves when something is drastically wrong, placing their pension benefits at risk.

I always tell my readers to think about pensions this way: pensions are all about managing assets and liabilities. You first need to understand the liabilities and the factors that impact them and then figure out a long-term strategy to meet these long-dated liabilities with as much certainty as possible.

Hugh O’Reilly, President and CEO of OPTrust, knows all this. He penned an op-ed comment with Jim Keohane, President and CEO of HOOPP, Looking for a better measure of a pension fund’s success, underscoring the need to place a pension’s funded status front and center when looking at its success.

This is why OPTrust is changing the conversation, focusing more on its funded status when delivering its annual results. Others like HOOPP, Ontario Teachers’ and OMERS are also emphasizing their funded status when discussing their annual results.

It’s important to remember that HOOPP, OMERS, OTPP and OPTrust are all pension plans which manage assets and liabilities. HOOPP and OTPP have adopted a shared-risk model which effectively means when their plan runs into a deficit, the risk is equally shared among the plan’s sponsor and its members. In the past, when OTPP and HOOPP were underfunded, they raised contributions or cut benefits (typically cut full inflation protection to offer partial indexation until their plan was fully funded again).

OPTrust and OMERS guarantee full indexation, which places an added burden on them to achieve fully funded status when their respective plan experiences a shortfall. They can raise contributions on active members but they try to avoid this as much as possible to maintain inter-generational equity.

In others words, there is no shared-risk model at OPTrust and OMERS, much to their detriment even if their retired members are happy knowing they don’t need to share the burden if their plan experiences a deficit.

What about AIMCo, bcIMC, CPPIB, PSP and the Caisse? They are large pension funds managing the assets of their plan members taking into consideration their liabilities which are determined by the plan’s actuaries. In other words, liabilities figure into their investment decisions but they manage assets only, not the liabilities.

It’s a bit confusing but one thing Canada’s large defined-benefit pensions all have in common is great governance separating government from their investment decisions allowing them to attract and retain very talented staff across public and private markets which in turn allows them to invest more of the assets directly, lowering overall cost of operations.

What else do Canada’s large, well-governed DB pensions have in common? They all believe in the benefits of DB pensions and are particularly aware of the brutal truth on DC plans.

I would go a step further. In my last comment I touched upon America’s growing retirement angst and someone sent me another great comment on financial insecurity gripping the nation.

Clearly the private sector solution is leaving far too many people behind. It’s not just that people are failing to save for retirement, the actual structure of their retirement leaves them far too vulnerable to the vagaries of markets.

Again, very briefly, the benefits of large public defined-benefit plans which are all ideally backed up by the full faith and credit of the federal government are:

  1. Companies can focus on their core business, not pensions.
  2. Pensions will be portable no matter where you work (private and public sector)
  3. DB pensions pool investment and longevity risk so members are not impacted by a bad bear market and will never outlive their savings
  4. Ability to invest directly in public and private markets, not only lowering costs, but also taking advantage of a pension’s long investment horizon.
  5. Ability to invest with the very best managers across public and private markets all over the world.
  6. Members can be assured they will get their pension promise fulfilled and plan their retirement with the peace of mind of knowing they won’t succumb to pension poverty.
  7. The direct and indirect benefits to the overall economy from these large DB pensions cannot be overlooked. They create good paying jobs and by fulfilling their plan’s mission, their members can spend accordingly during retirement, allowing governments to collect more income and sales taxes. In other words, good pension policy that bolsters DB plans makes good economic policy because it lowers social welfare costs, increases aggregate demand and government revenues.

All this to say I wish OPTrust lots of success with their new “People for Pensions” program and hope others follow suit. Get the word out, educate people on the benefits of DB pensions (one lonely blogger can’t do it all by himself).

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