Interest in DBplus and OPTrust Select remains amid coronavirus crisis

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Puzzle pieces together © olegdudko /123RF Stock PhotosThe coronavirus crisis is putting new stresses on businesses as they grapple with cash flow and business continuity, but even amid such uncertainty, some employers are still looking to join defined benefit plans.

The Colleges of Applied Arts and Technology pension plan is continuing to see interest in its DBplus offering, with the coronavirus crisis not impacting the expected volume of new members, says Derek Dobson, the CAAT’s chief executive officer and plan manager.

However, some plan sponsors are deferring when they’ll join because their business priorities have changed, he notes. “But for those companies who see the writing on the wall in terms of [defined benefit] volatility and want to address those risks — maybe they were thinking about doing it later — they’re now accelerating to take those spots.”

An advantage of DBplus for employers is that it can be accounted for like a defined contribution plan, while offering DB benefits to employees. And it allows the flexibility for employers to join on a go-forward basis or to merge past pension obligations and offload risk.

DBplus’ base planning assumptions are that the CAAT plan will grow by 300,000 members in the next six years. The latest forecasts suggest the number is even greater. “We’re actually seeing increased interest,” says Dobson.

“Just for context, we were on a two-hour call yesterday with an employer with 2,000 members who wasn’t on our radar and, all of a sudden, wants to move very quickly. Last week, we were on a call with an employer who has 6,000 members, wasn’t on our radar and thinks this is the perfect solution given the environment.”

The OPSEU Pension Trust’s, OPTrust Select offering, which provides a DB pension on a go-forward basis for companies in the charitable, not-for-profit and broader public sectors, has seen a small drop in the number of applications and one or two employers have delayed their onboarding of employees into the plan, says Dani Goraichy, the OPTrust’s chief risk officer and senior vice-president of actuarial services and plan policy.

That said, he notes two organizations have been onboarded during the pandemic and applications are coming in. “That was a little bit of a surprise for us that organizations are continuing to do this while they’re, I guess, mostly working from home.”

Both OPTrust Select and DBplus were built with flexibility in mind. On the contribution front, DBplus is designed so that, if an employer has to cut payroll, contributions to the plan would automatically go down accordingly. Similarly, OPTrust Select allows contributions to fluctuate with wages, says Goraichy. For example, contributions are set at three per cent and if an employer has to cut payroll then its total contributions would decline proportionately. The OPTrust Select also has more flexibility on the benefits side than the organization’s primary pension plan.

“OPTrust Select has conditional inflation protection embedded into it and wage upgrades during retirement. What that means is that OPTrust Select contributions would not change as a result of severe market decline. Essentially, it can weather these types of markets a lot more nimbly than other defined benefit pension plans.”

To date, however, no changes have been made to OPTrust Select. It’s performing well and the funded position has been relatively steady, he adds.

For the Ontario Nonprofit Network, which joined OPTrust Select in 2019, the coronavirus crisis is highlighting the benefits of being part of a large DB plan. “With the coronavirus, it’s been very clear to us that the larger pension plans do have risk management strategies in place,” says Cathy Taylor, the organization’s executive director. “They can and do recover from market fluctuations and corrections, unlike if you were contributing to a staff [registered retirement savings plan], for example.”

However, many not-for-profits are focused in the immediate term on keeping the doors open and pensions may not be top of mind, she adds.

But although many non-profit organizations and charities are struggling in the short term, they’ve been resilient and creative in finding ways to serve their communities and keep their staff. “And that gives us a lot of hope for the future and I certainly think that having a pension plan is part of that hope for the future as we look forward.”

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