Pension Reform Central

Pension plans are quickly becoming a priority on society’s fix-it list.

Plan sponsors in the United States and Canada are finding it increasingly difficult to fund defined benefit (DB) pension plans, which rely on employer contributions to provide promised benefits to participants. As the population ages and investment performance slips, additional contributions are needed to adequately fund DB plans, but economic volatility makes finding the extra cash problematic.

As DB plans struggle, attention has shifted to defined contribution (DC) pension plans—also known as capital accumulation plans in Canada. Both sponsors and participants contribute money to DC plans, which is often then left to the mercy of the markets. Some wonder whether DC plans will provide adequate retirement income—will participants have enough money to last the rest of their lives?

Federal, state, provincial and local governments in both countries are legislating temporary and permanent funding/solvency relief for DB plans. In the U.S., federal lawmakers granted temporary funding relief in 2010 and again in 2012. Governments and industry experts are also analyzing the possibilities of retirement income security for their aging populations. Are lifetime income distribution options plausible? Should retirement saving be mandatory? Are participants receiving the information and education they need to plan for retirement and make wise investment decisions? These are just some of the issues to watch in the continuing debate.