Other large pension funds would offer similar fiduciary frameworks, and many can deliver at costs even less than the SPP through economies of scale already established. OMERS has demonstrated this already in very competitive pricing for their new voluntary contribution account services for their current plan members.
Even if specified pension plan status for other large pension funds is not forthcoming from the federal government, the current pension statutory framework does not preclude a willing pension plan board and sponsor from amending a pension plan to extend participation to unaffiliated employers. In this regard, it is noted that although there is a minimum employer contribution requirement for a defined contribution provision (1% of earnings), this is subject to the administrative discretion of the Minister of National Revenue. Further, such rule will have to be modified in any event, in some fashion, to accommodate the PRPP principle of voluntary employer contributions.
In addition to the advantage of fiduciary independence from shareholder interests, large pension funds as competitors to financial institution PRPPs would also have the following attractive features:
* participating employers would be relieved of any direct fiduciary obligations in respect of the pension plan (like PRPPs); * an immediately competitive pricing regime, based on already established economies of scale; * an established track record of investment results; and * investment offerings that are appropriately limited for a pension plan, particularly when compared to the plethora of investments offered by financial insurers which are very confusing for most pension plan members.
Perhaps most importantly, competition from large pension funds can set a tough standard towards ensuring a pension policy objective for PRPPs of realizing benefits from economies of scale and delivering most of those benefits to better the retirement income security for Canadians covered under such plans. Utilizing OMERS new voluntary contribution account fees as an example, fund investment management fees could be as low as 0.50% per annum (and possibly less), along with a fixed administration fee of $23 per member account.
The only question large pension funds really need to ask of themselves concerning this kind of pension innovation is, “Why wait?”
I couldn’t agree more, why wait? The problem is that the private sector knows it can’t compete with OMERS, CPPIB, and other large Canadian public defined-benefit plans when it comes to delivering well governed, cost effective retirement funds that invest in both the public and private markets (you can add HOOPP in the mix even if it’s a large private DB plan). That’s why you’ll never see Canadian public DB plans compete in the PRPP space. Politicians will never allow it. It’s a shame because it makes perfect economic sense and despite what banks, mutual funds and insurers think, I’m sure other corporations would love to offer their employees a public option for pension security.
Keywords: pension reform, CPP, PRPP
