As an alternative defined benefit plan, a relative few sponsors have introduced a shared-risk design of variable or flexible benefits, said Keith Ambachtsheer. “It's not easy” to do “in a way (that) is fair and understandable by plan members,” he said. The challenge is avoid wealth transfers from future generations to the current generation, he added.
Mr. Ambachtsheer is director of the Rotman International Centre for Pension Management and adjunct professor of finance, at the Rotman School of Management, University of Toronto, and founder and president of KPA Advisory Services Ltd., a Toronto-based strategic consulting firm to pension funds and other asset owners.
“You've got to be really careful with the shared risk” and identify “what are you sharing,” Mr. Ambachtsheer said. “Longevity risk (is) a pool-able risk.” But “if you start pooling investment risk, you are now in a potential gaming situation,” for example, about whether to hold investment gain to build surplus assets or spend it on raising current benefits or reducing contributions.
“So when you talk to me about intergenerational investments risk sharing, I'm saying don't count me in. ... I don't think it's doable,” Mr. Ambachtsheer said.