The ABC Solution

Would a province-wide pension plan make saving for your employees’ retirement easier or impose a new burden on business?

by Jim Veenbaas

Does your company offer a pension for employees? Chances are it doesn’t. Only about 20% of private-sector workers are enrolled in an occupational pension plan, in part because of government red tape and regulations that make it difficult and expensive for businesses, especially small to mid-sized businesses, to establish their own programs.

Would it, though, if there was a simple, low-fee plan overseen by government that employer and employee could choose to opt into? That is the subject of a growing push within the governments of Alberta and British Columbia ever since an independent committee recommended it, among other pension reforms, a year ago.

The Joint Expert Panel on Pension Standards (JEPPS) was established in October 2007 to review legislation in both provinces and recommend ways to boost pension plan participation. Among its key recommendations was a proposal to establish a voluntary pension plan in the two provinces that is inexpensive and effortless to join, and available to all employers, employees and even self-employed workers.

“It’s been a long time since there has been a substantial, fundamental overhaul of the pension system. We didn’t want to wait another 15 or 20 years to do something. Our goal was to make something available to employers and employees who can’t sponsor their own plan right now for whatever reason,” says Chris Brown, the Alberta co-chair of the JEPPS, who works as a pension lawyer and partner in the Calgary office of Osler, Hoskin & Harcourt LLP. “If you are running a mom-and-pop grocery store, gas station or any small business in this province, you just don’t have the resources to devote to the complicated requirements that you have to comply with to establish a pension plan. Everything that is required of an employer is both costly and time-consuming.”

JEPPS published its findings in a report entitled Getting Our Acts Together: Pension Reform in Alberta and British Columbia. As the name implies, the report recommended that each province dump its existing legislation and adopt one set of harmonized regulations for both jurisdictions that is flexible and responsive to the needs of businesses and their employees.

The most significant recommendation, however, was the government-run, supplemental pension called the ABC Plan. The committee didn’t go into details about the pension’s structure – recommending instead that a steering committee be established to spearhead the plan – but it did recommend a simple direct contribution formula that encourages matching contributions by employees and employers.

The pension would be available to everyone, but not mandatory like the Canada Pension Plan. Instead, every business and employee in the two provinces would be automatically enrolled in the plan and be required to actively take steps to opt out. Although it would be government-run, much of the work and administration could be tendered out to private-sector firms. With that kind of arrangement, administration and investment management costs could be reduced to 0.5% of assets, about four times less than most people pay for the administration of their individual investments.

“Some people advocated a mandatory program, but that, in our mind, was a significant departure from the world we have today, and it might be too expensive for some businesses in tight financial circumstances,” says Brown. “We wanted to develop something that was cost-effective in terms of administration, that would benefit from economies of scale and benefit from professional management. There were three words we quoted to ourselves a lot: practical, affordable and feasible. That became a mantra for us and that’s how we evaluated everything.”

Certainly, businesses large and small are hungry for some kind of change. “Each province has its own sets of rules and regulations, and there’s a federal set as well. It has become very difficult for companies to make sure they comply with all these different regulations and it’s becoming more onerous at a time when companies are trying to be leaner,” says Shirley McIntyre, director of pensions for TransAlta Corporation and executive member of the Association of Canadian Pension Management (ACPM). “We’re not in the pension business, and it’s becoming more costly to keep these things running. You have to feel for the smaller guys. They not only have to contribute to a pension plan but assume the costs of communication, the cost of administration and management. Why would they want to do that?”

If they establish a new pension scheme, Alberta and British Columbia would be the first provinces in Canada to take concrete steps to address the looming retirement crisis that faces the entire country. Simply put, only one in three baby boomers are saving enough money to adequately fund their retirement, another one in five have no retirement savings at all and one in three seniors 65 and older are still in debt.

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