A palatable pension plan

Flex benefits are popular, but flex pensions have been a bust — here’s a DB/DC combo that might make them more desirable all around
By Peter Gorham
|Canadian HR Reporter|Last Updated: 07/31/2007

The flexible pension plan has proven to be a big bust. It’s expensive to operate and extremely difficult for members to understand. The consequence is very low enrolment in the flex portion, exacerbating the expense element. Flexible benefits, on the other hand, have thrived because employees generally understand the choices offered and like the ability to select coverage that meets their needs.

But there is a flexible pension plan that offers compelling benefits, is easy for plan members to understand and offers flexibility consistent with members’ life needs.

It starts with a basic defined benefit (DB) component. It’s designed to provide a pension in retirement that will support a basic lifestyle. For example, a benefit equal to one per cent of final average earnings for each year of service, with a spousal pension. Since it is a basic level benefit, providing some portion of inflation protection should be considered. This uses up a little less than half of the retirement savings room available under the Income Tax Act.