Defined benefit pension plan | Page 2 | General financial discussion | Discussion forum

I can see that there was a problem with contribution levels which became apparent a few years ago. This is always a risk when people assume that what happened in the past is what is going to happen in the future. There has also been an issue of rising life expectancy. Life expectancy in spouse's group is now in the high 80s, so that is one of the things they had to adjust for. This will likely make annuities even worse next year, but premiums on life insurance OUGHT to decrease. I won't hold my breath on that.

I conclude that it is a matter of how these plans and the employers dealt with the problem. It is still my impression that there were more unresolved problems with private plans, but it's only an impression. CPP put their contribution rates up and seem to be doing fine (over 18% return in 2015 "net nominal" - whatever that means - it's the only number i could find). Ontario Teachers are doing fine (13% return in 2015, probably better than ANY diversified mutual fund). These plans are even bigger than spouse's and make it look ho-hum by comparison!

As of January of this year, spouse's plan is over 110% funded on a going-concern basis. This is a jump up from last year. And last year was a jump up from the previous. At this rate, the surcharge on contributions will likely be removed next year or the year after. There is a pre-set criterion for when this can happen.

The 5 year average rate of return is almost 10%, but they only need almost 6% in order to have enough to sustain the plan long term.

So, yes, I guess they have done well with their investments. I don't follow the details of what they invest in because it would make me ill with worry if I did! I just like to know that they seem to be doing a good job and that I don't have to make the decisions.

I still don't understand why employers would always be on the hook. With my spouse's plan, it is all laid out in detail what is to happen, step by step, in such a situation, and this is not one of the outcomes that is mentioned. It is set up in a way that this is very unlikely to happen, as far as I can see. There are measures to anticipate when higher shared contributions are needed, to drop inflationary protection in payouts, and so on. In fact, considering the issue of inflationary protection, I would say that the retirees bear more of the brunt as there is no comparable penalty for the employers.

So, I guess the remaining questions are, why are some plans more successful than others? and why can some employer/employee situations not come to an agreement about contributions that could save the defined benefit plan?

I can't say why some do better than others except that everything I have read suggests that bigger is better in most cases, when it comes to pension plans.

And as to why they can't all come to civilized agreements, I don't know the answer to that one either. My spouse's workplace is unionized, so I wouldn't blame it on the unions. It does seem to me though that a lot of employers have been bad-mouthing defined benefit plans for years, so I do have questions about their commitment to the process.

Seems to me that the smaller private plans would do well to amalgamate. This would give them the size with which to be more likely to succeed.