Quebec non-profits eyeing DB pensions

New retirement income system important to attract employees

Several organizations in Quebec are hoping to roll out a new type of multi-employer pension plan for the more than 100,000 employees in the province’s 14,000 community and social groups.

Looking to meet the needs of this challenging group — characterized by low wages, frequent part-time work, job mobility, 80 per cent women and limited budgets — the plan makes sense for several reasons, said Lynne Toupin, executive director of the Ottawa-based HR Council for the Voluntary/Non-Profit Sector.

For one, the non-profit sector is quite diverse and about three-quarters of the organizations have fewer than 10 employees and one-half have fewer than five, “so having a structure to implement a pension plan system is not on,” said Toupin.

In addition, there is the challenge of cost. These groups depend on donated dollars yet the givers want that money to go to programs, not employees.

“They see that as gravy to give people decent benefits and wages, but somewhere in this whole context, there has to be a balance,” said Toupin.

But in recent years, a workable retirement income system has become more important to attract and retain employees, she said. That’s because the government has downloaded many community services to non-profits so the nature of the work has changed. There is also greater demand for accountability of programs, requiring greater skill sets, and a younger generation coming in with clear expectations around benefits.

“It’s an employee’s market now, not like it was 12 years ago with 11-per-cent unemployment, so we have to be more competitive and offer fair and reasonable compensation,” said Toupin.

A defined benefit (DB) plan, with some twists that make it resemble a defined contribution (DC) plan, the proposed plan features contribution amounts that can range from two per cent to 18 per cent of an employee’s salary. It also may be available to part-time and temporary employees and is portable, so employees changing jobs can continue to contribute without penalty.

Organized largely by the community group Centre de formation populaire (CFP) and the women’s group Relais-femmes, the plan is a career-average plan, said Michel Lizée, co-ordinator of community services at l’Université du Québec à Montréal.

The required total contribution must assume the pension credit will be indexed annually based on consumer price index increases up to four per cent per year, but this indexing is not guaranteed (on a solvency basis for instance) and may only be granted after each actuarial valuation if the plan is in surplus (on a capitalization and solvency basis). The contributions are also set at a higher level than the guaranteed benefits.

“Participants collectively support the risk of the plan… so the indexing reserve or mechanism is seen as building a cushion that should stabilize the contribution,” he said.

In addition, no improvement can be made to the plan unless it is in surplus, unlike other DB plans where members enjoy progressive service credits or annual improvements in their formula, even if the plan is in deficit, said Lizée,

“Our regulations have a lot more conservatism built in, hopefully,” he said.

This new type of plan looks and feels like a DC plan because the employer pays the fixed contribution and when it withdraws, there is never any unfunded liability to pay because people are insured when they terminate and the surplus belongs to the participants. If the plan is in deficit and an employer withdraws, a participant receives the present value of his benefits times the percentage of deficit.

“There’s risk sharing, even for those who are leaving, but by doing so, there’s a certainty for an employer that its contribution will never go beyond whatever commitment it has done,” said Lizée.

However, there are a few challenges to implementing the system, said Toupin. For one, boards must be convinced money should be put toward this — for retiring workers and to recruit and retain current ones.

“It’s not a slam drunk but, if nothing else, it’s having an important impact in terms of raising awareness about this part of the workforce in Quebec and why a plan has to be put in place,” said Toupin.

The groups behind the new plan have made presentations to community and social organizations in Quebec and hope to have a critical mass of 800 members by the spring to make it diversified and large enough to support operating costs. Ultimately, they hope to launch Canada’s first non-profit sector pension plan in April or May.

When people are shown what awaits them when they retire if they stick with current pension systems — an income of $13,000 to $18,000 — they take notice, said Lizée. “That’s a very powerful message.”

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