Pension management expertise is crucial — but other important factors also play a part.

By Ed McCarthy

The upcoming May 20 CAiP virtual conference will focus on the performance of ESG (environmental, social and governance) investments. A keynote fireside chat session on building sustainability of pension systems will feature Derek W. Dobson, CEO, CAAT Pension Plan and Clive Lipshitz, Managing Partner, Tradewind Interstate Advisors. We asked Mr. Dobson for a preview of his thoughts on this topic.

CAiP: Can you give us a brief overview of CAAT’s business?

Derek Dobson

Derek W. Dobson: Established in 1967, the CAAT (Colleges of Applied Arts and Technology) Pension Plan is an independent, jointly governed plan that offers two designs of a defined benefit pension. Originally established for the 24 Ontario colleges, the CAAT Plan now serves more than 100 participating employers from the for-profit, nonprofit and broader public sectors, and is open to continued growth in membership where it is mutually beneficial.

CAAT provides secure income in retirement to 70,000 members who work at one of the more than 100 employers in nine industries across Canada and has support and participation from 15 unions and member associations.

Last year saw steady growth in membership and in the number of employers. The Plan grew by 7,500 members and 39 employers.

Since DBplus was introduced in 2019, CAAT has welcomed about 60 employers including Brink’s, United Way of Greater Toronto, the Vancouver Foundation, Lawyers Financial, Torstar, University of Saskatchewan, and the College of Physicians and Surgeons of Newfoundland and Labrador.

On January 1, 2021, the Plan was 119% funded on a going-concern basis with a $3.3 billion funding reserve.

The preliminary rate of return for 2020 is 11%, with assets of $15.8 billion, up from $13.5 billion the previous year. (These numbers will be confirmed April 20, when we release our audited Financial Statements).

CAiP: How do you define and measure sustainability in a pension plan?

Dobson: [We define it as] [t]he funded status of the plan with adequate reserves to weather the unexpected demographic and economic shocks.

CAiP: What are the key factors that influence sustainability?

Dobson: The key factors that drive pension plan sustainability include:

  • Effective joint governance – where members and employers equally share the risks and responsibilities of overseeing the pension plan;
  • Robust funding – ensure the plan is adequately funded through appropriate contribution rates for the benefits promised;
  • Trust – members and employers trust that the plan is well governed and well managed, and that decisions are made in the best interest of the plan and its beneficiaries;
  • Pension management expertise – the specialized knowledge and experience to run a pension plan;
  • Perceived value of the plan – members perceive the value of the pension benefit to be much greater than the sum of contributions made;
  • Relevant plan design – the plan design that meets the needs of members (e.g., early retirement options) and employers (e.g., no liabilities on the employer’s books);
  • Strong partners – stakeholders and service;
  • Support from regulators – so that legislation and regulations help to foster viable pension plans;
  • Long-term focus – investment strategies are aimed on meeting the plan’s obligations over time.

Ed McCarthy is a longtime financial writer and author of three books, including “Foundations of Computational Finance with MATLAB.”

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Join us for the May 20 CAiP Virtual Forum and Fireside Chat on the pandemic’s effect on ESG investing, and hear from senior pension fund executives and leading asset managers on strategies to consider as we navigate short-term volatility and look ahead to long-term effects.

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