A multi-employer defined contribution (DC) pension plan
permitting all employers and the self-employed to automatically
participate would greatly increase pension coverage, believes Tom
Reid, senior vice-president for group retirement services at
Canadian insurer Sun Life Financial.
He expressed this view in an address to the
Canadian Pension & Benefits Institute’s annual pension summit
on 24 November.
“With three to five million Canadians not
having access to an occupational pension plan, we need to improve
the retirement, savings and income system in Canada, opening the
door to expanded workplace participation for all Canadians,” Reid
Reid explained that, under his proposal,
employers joining the DC plan would select a provider and all the
company’s employees would automatically be enrolled.
He added that although employers could opt
out, Sun Life believed employment market pressures and what he
termed the “gentle push” of automatic enrolment and low fees would
lead to widespread participation. Another spin-off would be a
“significant increase” in Canada’s retirement savings rate, he
On the question of fees, Reid said many
factors would determine the cost of his proposed solution, such as
participation rates, annual deposits and asset balances.
However, he believed that a multi-employer DC
pension plan would achieve the same scale advantages that larger
Specifically, Reid explained that Canadian
group plans pay, on average, lower fees to their pension plan
providers than those in the US.
He cited a June 2009 study by professional
services firm which found that in the US the average fee is 93
This, said Reid, compares to an overall
average of 60 to 70 basis points across Sun Life’s Canadian group
retirement business, with two-thirds paying less than 100 basis
points and half paying less than 75 basis points.
Reid added that there have also been calls for
expanding government-run plans. However, he believed his private
sector solution was the right one for solving the retirement
Workplace retirement savings plans providers
have a proven track record and distribution network to reach small
and mid-size employers, stressed Reid.
He added: “If we can knock down the barriers
preventing multi-employer plans, do we really need to build a new
government-run retirement investment programme?”