CAAT's Jillian Kennedy warns that employers' passive approach to DC plans may be offloading long-term financial burdens onto unprepared workers
Canadian employers have increasingly shifted away from defined benefit (DB) pension plans in favour of defined contribution (DC) plans, often sold on the promise of simplicity and reduced long-term liabilities. But Jillian Kennedy argues this strategy may be sowing deeper problems.
Kennedy’s concern isn’t about organizations choosing one plan type over another. It’s more so about the illusion that doing nothing is a neutral choice. She draws a stark contrast between the design philosophy of DB and DC plans. While DB plans consider the entire life cycle, basing risk on the age of death, not just retirement, DC plans push the onus onto the individual as soon as they stop working, leading to insufficient support.
"The risk isn't about what age workers want to retire, the risk is actually when they'll die," said Kennedy, chief strategy officer at CAAT Pension Plan.
Consequently, retirees face a complex set of financial demands, from ongoing income needs, longevity planning and inflation exposure, often with little institutional support, she said.
“It comes down to, what are employers transferring as risk to the people who are in their plans? Are they prepared? Do they have the resources? Do they have the tools? Do they have the knowledge? The inaction sometimes actually is going to fail to evolve the pension strategy where it needs to go."
Reflecting on how her perspective has shifted over the course of her two-decade career in the pension space, she used to actively advocate for organizations to transition from DB to DC plan arrangements.
Today, however, she finds herself in a different camp entirely, emphasizing that too many organizations view DC plans as the safer, “low risk” path.
While she emphasized that employers are increasingly aware of the need to secure employees with future-ready skills, they need to look beyond the recruitment challenge and acknowledge the burden placed on workers in DC environments, particularly as it's up to them to make savings last.
“It feels like there has been quite a shift in the way we are thinking about the future. It feels very different because that uncertainty cannot be contained,” she said. “We talk to ourselves about what is the risk of actually doing nothing… and potentially shifting that risk to employees that must now design on their own, how they de-risk with very little tools, resources and knowledge.”
Contrastingly, Jean-Daniel Côté, vice president and practice leader, retirement consulting at BFL CANADA, sees DB plans as largely passive for members, with little engagement until retirement. At that point, retirees face a critical decision, like choosing from preset pension options with limited flexibility or context. He believes this difference leads to a more informed DC member by retirement age.
“When they get to retirement, they're more aware of the landscape and what's available or not than someone who's in DB,” he said.
Whereas for DB plans, “You’re sitting in the back, someone drives you to your destination, then it’s when you come out the door that you realize where you’re at."
Yet, Kennedy acknowledged that most employers are doing their best “within the confines of what’s available to them.” She believes organizations are acting in good faith, trying to support their employees while navigating what the pension and investment markets currently offer.
Still, she emphasized the available tools may be fundamentally inadequate simply because employers may not be able to offer robust de-risking strategies or the appropriate asset classes because these haven’t been made accessible in the market.
Chief to that, employers also face growing tension particularly around how to support a workforce stretched across generations who are increasingly focused on short-term survival over long-term security.
She explained that whenever employees can't harness predictability in their world, there's a fear that uncertainty will somehow impact their quality of life and that long term planning may be harder to envision and, in some cases, may even be seen as unrealistic.
“Employees will likely redirect their anxiety and their financial pressure to things that they can control,” she said, pointing to home ownership, debt repayment, and basic transportation as examples. “These are all very important things, but they are very short-term things that can be quite distracting from that long-term goal.”
While these are legitimate and pressing concerns, this short-term focus can be detrimental to both employers and employees as Kennedy stressed that they can overshadow the importance of long-term financial planning.
After all, she expects these trends to manifest in a range of serious outcomes: delayed retirement across generations, a growing inability to retire by age 65, and even retirees re-entering the workforce after depleting their savings earlier than anticipated.
That’s why she underscored a back-to-basics approach, particularly for pensions, noting “a need to get back to long term planning. We have to get back to long term results,” she said.
“This is ultimately how we create resiliency. This is what employers want because they can add value in how they take employees through this journey,” she added.
She asserted it’s time to rethink how savings strategies are approached, starting with the need for personalization much earlier in an individual’s financial journey. For her, the current model waits too long to engage people meaningfully as retirement planning and retirement saving should span an individual’s entire working life.
“It can't happen when you're 55,” she said. “It needs to happen earlier. We have to start to think about how people save across their life cycle. That life cycle could be from the time you start working at age 25 to the time that you die at age 95.”
What worries her most is the inertia among some sponsors who treat de-risking as purely a funding-level issue. Kennedy stressed that this mindset is outdated, emphasizing there are broader workforce trends and economic conditions at play. Failing to respond to them may end up ultimately pushing risk downstream to employees.
“It’s not always just about the liability and the strength of your pension,” she noted. “By doing nothing, are we now transferring that risk to the investor or to the person who entered the workforce and trying to figure it all out?”
Meanwhile, Côté underscored that DC plans are already being tailored to match the goals of a multigenerational workforce, particularly as they offer more adaptable savings options, like integrating FHSA contrubutions, target date funds and even offer financial planning services.
“The good years of DB are long gone,” he said. “The reality of this world doesn't make them as sexy as they used to be. DC type plans are getting more sophisticated, more flexible, and therefore probably answer a lot of the various requirements or preferences of members.”
