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April 11, 2021

DB pension plans soon a thing of the past: report

A continuing shift in pension plan funding is driving more employers to rethink their pension plan structures, forcing employees to shoulder more risk in the process.

Pen Contract work, career changes and a longer, more active retirement have changed what Canadians need from a pension. And, increasingly, they’re on their own when it comes to funding their days after work.

Faced with having to pump more money into plans or decrease the benefits, companies of all sizes are increasingly moving workers away from guaranteed defined benefit (DB) pension plans into open-ended defined contribution (DC) plans.

51 per cent of Canadian companies have already converted to DC plans for current employees or new hires, up from 42 per cent in 2008, according to a recent review by Towers Watson. And a further 9 per cent plan to convert this year.

And while employers may use the recent financial crisis as an excuse, the trend is really much more deep seated, according to Towers Watson’s Ian Markham.

These results suggest “that employers planning a conversion to DC are intent on doing so regardless of whether economic conditions improve, or a more sponsor-friendly legislative environment appears, or even in lieu of less dramatic changes to plan design or investment strategy,” he says.

In other words, unless you work in the public sector, those DB plans are pretty much on their last legs.

But there’s sat least some good news for existing DB plan holders fretting over their employer’s viability.

A recent Ontario ruling means that companies filing for bankruptcy protection can’t simply ignore an under-funded pension plan. Instead, companies will have to first make a case in court as to why pensions have to be trimmed, thus moving employees further up the food chain when it comes time to settle up with creditors.

Have you gone through a pension plan makeover? Do you feel worse off than you did before? Have you been left with a reduced pension following a bankruptcy?

By Gordon Powers, MSN Money

* Follow Gordon on Twitter here.




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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...