HOOPP - AR 2007 - The Competitive Edge


	A HEALTHY FUTURE
		A Healthy Future
		Tailor Made
		The Competitive Edge
		Building on Our Past
		Worth the Investment

Defined benefit (DB) pension plans are an integral part of this country’s socio-economic fabric. The proof is in the numbers. Approximately 4.6 million working Canadians – more than 14 per cent the nation’s population – belong to a DB pension plan. That’s more than five times the number who belong to a defined contribution (DC) pension plan.

Given these numbers, it’s no surprise that Ontario’s Expert Commission on Pensions (which is currently reviewing the province’s pension legislation) has identified “the importance of maintaining and encouraging the system of defined benefit pension plans in Ontario” as its number one guiding principle.

As one of the country’s biggest and most respected DB pension plans, HOOPP is proud of its lineage. We believe that the DB pension model is fundamentally superior to its DC counterpart. The table below explains why. It provides a simple summary of the two plan types and highlights what we believe to be the key advantages of the DB model.

	DB	DC	The DB advantage
Philosophy	To replace a portion of a member’s pre-retirement income with a lifetime pension.	To help the member accumulate retirement savings during their active careers.	HOOPP’s goal is income, not savings – and that means much more security for members.

Contributions	Typically, the member and employer contribute a set percentage of the member’s salary. Funds are deposited in a pension fund for the benefit of all plan members.	Typically, the member and employer contribute a set percentage of the member’s salary. Funds are deposited in a personal account set up in the member’s name.	With a DB plan, all contributions are pooled in one fund, so the investment risk is shared by the membership as a whole. Under a DC plan, the member assumes the full investment risk.

Investment decisions	Investment decisions are made by the professional money managers, based on stringent guidelines established for the plan as a whole.	The individual member must decide how the money is invested, based on a range of available investment options.	With a DB plan, the member doesn’t have to worry about making investment decisions or tracking investments. The investment decisions are made by highly qualified investment professionals.

Income at retirement	The member’s retirement income is a percentage of their pre-retirement earnings – the more service they have, the bigger that percentage gets. Once the member starts receiving a pension, they receive it for life.	The money in the member’s account is used to buy a lifetime annuity (an income stream). The size of that income will depend on various factors, such as how much has been contributed, the success of the member’s investment strategy, and interest rates at the time the member buys an annuity.	With a DB Plan, the member enjoys the peace of mind that comes with knowing their pension will be there… when they need it. Because the member’s DB pension is based on a formula, they can more readily estimate what their future pension will be.

Ancillary benefits	Many DB plans, such as HOOPP, offer valuable “ancillary” benefits, such as: inflation protection enhanced early retirement benefits survivor benefits disability benefits	At retirement, the member may be able to buy a lifetime annuity that includes some ancillary benefits, such as partial inflation protection. However, these extras tend to be extremely expensive, meaning the amount the member receives may have to be reduced to provide for the extras.	With a DB plan, the ancillary benefits are built in. The member doesn’t have to shop around for (and buy) an annuity that includes these features.

There’s also a cost advantage with a DB plan like HOOPP for participating employers. HOOPP does the investing, pension administration, actuarial and other filings and more for the employer. And HOOPP’s administration cost is a tiny fraction of other financial institutions offering retirement products – we charge no administration fees of any kind.