Pension Plan Dilemmas


Mention the words “pension planning” to most people and the typical response is one of underwhelmed excitement. Before your own eyes glaze over at the thought of reading the rest of this blog post, imagine yourself in the future, having completed a successful career and entering into retirement. Do you see yourself as financially secure or are you in financial peril?

One hopes that the vision you have for yourself is that of financial security. The means to achieve that security are dependent on the fiscal planning decisions you make now, or that are made for you by your employer through the enrolment of employees in a pension plan.

As we know from our compensation studies, defined pension plans come in two categories.

The first is the defined benefit plan. This program provides for “retirement income based on a proportion of the employee’s pay” upon retirement. This means that an employee would receive a set amount of income, once they retire, based on a calculation of earnings that the employer has invested on their behalf. The employer is responsible for managing the investment.

The second is the defined contribution plan. This approach provides for “retirement income based on the accrued value of employer and employee contributions to the plan.” This means that both the employee and the employer pay into the plan on a set percentage. The employee can decide how the funds are invested. The income upon retirement is subject to strict regulations, and the amount the employee receives is dependent on the overall value of the fund.

Which one is better? There are conflicting evaluations for both types of plans.

A critique of the defined benefit pension plan is provided here. As noted by the author, defined benefit plans seem to be increasing in risk, based on numerous and evolving factors. This type of plan appears to be on the decline as an effective tool for ensuring financial security in retirement.

The risks that come from defined contribution plans are explored here. This author identifies the risks that may be in place should the employee not know how to invest or access the funds accrued on their behalf once they do retire. Defined contribution plans continue to be implemented as a preferred option for both employers and employees though, compared to the defined benefit plan option.

In either case, it is important that employees know what their options are well before the thought of retirement becomes a reality and, with it, the need for realizing a financially sound future.

Discussion Questions:

  1. In your opinion, should Canadian companies continue to offer defined pension plans for retirement security to employees? Explain your rationale.
  2. If you had to choose between a defined contribution plan and a defined benefit plan for yourself, which one would you choose? Explain your rationale.
  3. What other types of retirement planning alternatives could an employer provide instead of defined benefit plans?

Compensating for Eldercare


It is an undeniable truth that we all get a little bit older each and every day.

As we move along the aging path, so do our parents, at what seems to be an increasingly rapid rate. One day your parent is the way you have always perceived them to be – healthy, active, and independent. In the blink of an eye, that parent is suddenly not healthy, inactive and increasing dependent on others to get through the day. That other is usually a family member (you) who has to take on the role of caregiver to look after the physical and mental health of their aging parent.

While this is not a new trend for the Canadian workforce, the number of adult children who have taken on eldercare responsibilities continues to increase. According to a recent article published in The Globe & Mail, approximately thirty-five percent of Canada’s workforce have primary care responsibilities for one or both parents. There is no doubt that this percentage has a direct impact on organizational and employee productivity for those who have to take time off from work to care for their parents.

Click here to read the article.

While there are organizations that can offer a flexible work schedule or the ability for employees to work from home, many companies do not have a benefits strategy dedicated to workers with eldercare responsibilities. As noted in the article, eligible employees may be able access compassionate care benefits through federal employment insurance plans. The eligibility requirements, however may not be applicable in all cases. Most employees with eldercare responsibilities have to take time off from work without pay to attend medical appointments, emergency calls as well as attending to the day-to-day needs of their aging parent. From a compensation perspective, organizations should be looking at lost productivity costs balanced against the provision of both monetary and non-monetary eldercare benefits in order to reduce those losses.

This is a real compensation challenge for Canadian workplaces. With every challenge comes an opportunity to improve the situation. Hopefully effective compensation planning can provide increasing support to employees who have to care for parents who have spent their lives caring for them.

Discussion Questions:

  1. What would you include in an eldercare plan as part of a compensation strategy?
  2. If you had to take time away from work right now to care for an aging parent, what would you have to do? How would your pay and benefits be impacted?
  3. The article states that thirty-five percent of Canada’s workforce has eldercare responsibilities. How is this number reflected in your current (or most recent) work environment? What percentage of your current workforce has eldercare responsibilities?