CIA Pension Seminar April 15, 2009 Plan Innovation in Canada Robert L. Brown

1. CIA Pension Seminar April 15, 2009 Plan Innovation in Canada Robert L. Brown Institute of Insurance and Pension Research University of Waterloo

2. A Fine Balance: OECP • PBA and ITA should allow and encourage plan • innovation (not true today) • Size matters: - Lower admin costs per unit - Lower investment expense ratios - Can hire in-house investment expertise - Diverse investment opportunities (e.g., private placement) - Pooling of some risks (e.g., mortality) • $10 Billion in assets may be needed • May require allowing smaller plans to commingle assets CIA Pension Seminar/Régimes de retraite de L'ICA

3. A Fine Balance: OECP • Create a Pension Champion and a new Pension • Community Advisory Council to advise government • and regulator • The better the plan governance, the less the need for • invasive regulation • Improve joint governance and transparency of information • Include retirees in governance • File a governance and funding policy • More and clearer info to plan participants CIA Pension Seminar/Régimes de retraite de L'ICA

4. Encourage MEPPs, JSPPs and Jointly Governed Target • Benefit pension plans (JGTBPPs) - automatic participation (but can opt out) - for worker, plan is target DB - for plan sponsor, it is DC - can be used for SEPPs - require a Pension Advisory Committee (with some retirees) if not jointly governed CIA Pension Seminar/Régimes de retraite de L'ICA

5. A Fine Balance: OECP • Encourage commingling of small/medium size plans • to achieve the advantages of size • Establish an Ontario Pension Agency for stranded • pension assets, or • Allow existing MEPPs / JSPPs to service new, • less-connected, members • Model = OMERS or TIAA-CREF • Management could be private (so long as expenses • < 0.5% of assets) or • Expand the C/QPP (second tier) or create a comparable • provincial plan

6. Ontario Budget, March 26 • Allows OTPP to take on new and different clients • Consistent with goal of commingling of assets • Already allowed for OMERS

7. Province of Quebec Member-Funded Pension Plans • A DB target benefit plan • For employer/plan sponsor, it is a DC plan • A commingled asset plan, not individual accounts • Indexation of benefits, both before and after retirement • is contingent on the funding health of the plan • Can be a MEPP or a SEPP • Is meant to be fully funded at all times

8. Promises to KeepThe Nova Scotia Pension Review Panel • States that existing rules inhibit innovation • Notes that special MEPPs and JSPPs are DB but with • some contingent benefits • These plans have joint governance • The panel likes this model, says it should be utilized • more broadly • Suggests decreased regulation balanced by transparency • of information and balanced governance (including retirees) • Suggests a new promotion division to promote plans • (separate from superintendent)

9. Finally suggests a new province-wide plan - Anyone could join (but voluntary) - Administered by independent provincial agency - Could accept commuted value of orphans - Could move poorly managed plans in - A DC target benefit plan - Joint trusteeship

10. Getting our Acts TogetherAlberta / British Columbia (ABC) • Create a pension advocate to promote pensions • along with a joint advisory council to advise the • minister and regulator • Encourage plan innovation • Each plan should have a governance policy which • includes a funding policy (if DB)

11. Start a new provincial ABC plan - Available to anyone - Commingled assets ( = size) - Pooling of risks - Total expenses < 0.4% of plan assets - A DC plan (specified contribution) - But also a target D.B. plan • No benefit improvement unless plan funding is • healthy - Auto default is “you are in” - Can opt out (i.e. not mandatory) • Board of Governors decides investment direction • (at arm’s length from government)

12. Conclusion • Strongly similar recommendations • (at least at big picture level) - Four panels / five provinces - Wise and independent - Must be content worthy of further discussion