Are hybrid pension plans the answer?

DBs are nearing extinction, DCs aren’t ideal – it’s time for a third option
By Fred Vettese
|Canadian HR Reporter|Last Updated: 02/13/2012

While more than five million working Canadians rely on workplace pension plans for retirement security, the predominant form — a defined benefit (DB) plan — is in danger of extinction, at least in the private sector. Traditional DB plans are a non-starter for any organization that does not already sponsor such a plan.

And even though we have seen a massive migration to defined contribution (DC) pension plans, these are far from ideal since the transfer of risk to employees — who have minimal investment knowledge and an aversion to risk — will always be a problem. So is there a third way?

In the middle of the risk-sharing spectrum are hybrid plans, which include any plan with both DB and DC features. If employers no longer want to absorb all the risk, then surely plans that share the risk with workers is the way to go.