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Retirement Plans

Ontario groups seeking retirement income for all

New plans to put focus on part-time workers and the self-employed

Andrew Cash said labor law was enacted mainly for full-timers only.

Part-time workers, the self-employed and independent contractors in Ontario are attracting the attention of those that want to help them have retirement income through a sponsored plan.

"The access for non-full-time workers to a high-quality pension plan is low and getting lower," said Alex Mazer, founding partner at Common Wealth, a Toronto-based plan record keeper and administrator that assists labor and professional associations in creating retirement plans for part-time and low- to middle-income workers. "In the do-it-yourself world, investing produces poor results. How can we make sure these workers can get access to the same high-quality pension plan as traditional full-time workers?"

In Ontario, 19% of the workforce was part time and 16% is independent contractors or the self-employed as of Oct. 31, according to Statistics Canada data.

"The flight of the permanent full-time job is real," Andrew Cash, co-founder and president of Urban Worker Project, a Toronto-based advocacy group for independent workers, told participants at an Association of Canadian Pension Management conference in September. "Most of our labor laws are rooted in the premise of full-time stable employment."

All workers — including part time, self-employed and independent contractors — are covered by the C$328.2 billion ($258 billion) Canada Pension Plan. But because they have no full-time employer, workers must pay both the employer and employee shares of the combined 9.9% contribution required by law. That total contribution will increase to 10.9% by 2025 under an enhancement to the CPP approved in 2016. The CPP benefit by itself is not enough to retire on, experts say.

Rather than leave non-full-time workers to create individual retirement savings plans, Mr. Mazer said, unions, professional organizations and sector-level groups of retail workers or those in the arts are looking to become sponsors for those workers by creating multiemployer plans that combine the portability and investment selection of defined contribution plans with a defined benefit-style governance, administration and distribution system that helps create a steady stream of post-retirement income for these workers, he said.

In early 2018, the Service Employees International Union is expected to launch a multiemployer retirement plan for home health-care workers in Ontario. Common Wealth assisted in creating the plan and will serve as the plan's record keeper and administrator, Mr. Mazer said.

The plan will be categorized under Canadian law as a tax-free savings account to avoid the loss of other post-retirement income for many of these workers, Mr. Mazer said. For example, in standard defined benefit and defined contribution plans, workers who would qualify for the Guaranteed Income Supplement, an additional social security benefit for low-income residents, would lose 50 cents from the supplement on every C$1 they receive in retirement income. Tax-free savings plans are not under similar requirements, he said.

The investments in the plan will be a suite of Vanguard Group target-date funds; no other options are provided. The default option is the age-appropriate target-date fund, although participants may switch to other target-date funds based on risk tolerance, Mr. Mazer said. The SEIU as plan sponsor holds the fiduciary responsibility for the plan.

Depends on auto enrollment

Mr. Mazer said the success of the SEIU plan depends on the union getting home health-care employers to make contributions by implementing auto enrollment. However, if an employer won't contribute, union members could still participate through their own contributions without a company match. He wouldn't provide an estimate of assets the plan potentially could have.

"It should move eventually to all employers doing a 50/50 company match, but that could take some time," Mr. Mazer said. The union must negotiate the contribution with each employer, and those are done on a one-on-one basis.

Mr. Mazer said Common Wealth is working on two other retirement plan projects with a professional association and a sector-level group to create similar portable plans for self-employed workers and independent contractors. He added that existing public DB plans in Ontario are looking to expand coverage of non-full-time workers, but would not name the groups or the plans.

The common structural thread in these plans is the multiemployer structure. Derek Dobson, CEO and plan manager of another multiemployer plan, the C$9.4 billion Colleges of Applied Arts and Technology Pension Plan, Toronto, believes it will become the main method of retirement plan operation in Canada.

"The multiemployer, jointly sponsored pension plan will be the only kind left standing in 10 years," Mr. Dobson said. "The multiemployer space is the future of pension plans. It's just a question of if the defined contribution tsunami will make a dent in it."

CAAT began accepting part-time workers from its member employers in 2014 and now has 8,500 part-time workers as participants, all eligible on their first day of employment, Mr. Dobson said. He said CAAT's plan design for part-time workers is evolving.

"Traditional defined benefit plans were designed for full-time workers," Mr. Dobson said. "We've established a task force to create a design that better reflects what part-time people want and need."

Currently, CAAT's formula for calculating part-time funding and future pensions measures how long a part-time employee works based on a one-year service period. For example, a worker under a six-month contract for C$20,000 will be considered as a C$40,000-a-year worker that was employed for only half a year. Such calculations are required under Ontario pension law, Mr. Dobson said.

Mr. Dobson would not say if CAAT is looking to add any other retirement offerings for non-full-time workers.

At the C$70.4 billion Healthcare of Ontario Pension Plan, Toronto, a multiemployer plan, part-time employees have been eligible since October 2015 and can join on their first day, said Joseph Vecsi, spokesman. He said HOOPP has no plans to add independent contractors.

For those not covered by employer-sponsored retirement plans, the Ontario government created Pooled Registered Pension Plans, which "make it easier to save for retirement by providing employees and self-employed individuals, including those who may be independent contractors, with an additional savings vehicle that is low cost, achieved through a simple design and economies of scale, professionally managed and portable from one workplace to another," said Scott Blodgett, Ontario Finance Ministry spokesman.

The PRPPs, which launched in March, are provided by financial services firms approved by the Ontario government.

Not a practical alternative

Ontario's PRPPs and another defined contribution alternative, group registered retirement plans, aren't practical alternatives to a defined benefit plan, CAAT's Mr. Dobson said.

"The short answer is that we believe in retirement savings in general and any step is a good step forward," Mr. Dobson said. "But under those plans, people can't handle all the risk involved in managing their own money. DB plans far outweigh any benefits they could get" from those plans.

In studies done by CAAT, he said, DB plan participants get C$8 back in retirement for every C$1 of contribution from employees; under savings plans like PRPPs, every C$1 contributed translates to C$3 in retirement.