Happy Anniversary: Greenlight Retirement Program®
Tomorrow, I will be at the Greenlight Retirement Program® Governance Committee meeting #60 (virtually). This meeting marks 15 years of operation for the program with the committee meeting quarterly every March, June, September and December without fail. The Greenlight Retirement Program® was born on January 1, 2006 simultaneous with the introduction of the Guidelines for Capital Accumulation Plans (CAP Guidelines) published by the Canadian Association of Pension Supervisory Authorities.
As most readers will know, the CAP Guidelines, while not legislation, has been a guide for governance and administrative best practices for capital accumulation plans. The guidelines have resulted in much better reporting from recordkeepers to plan sponsors and plan members. In addition, the consulting industry has heightened the awareness of employers on their responsibilities in offering a CAP plan to employees. Much good has come from the journey over the past 15 years.
The Greenlight Retirement Program® is a jointly sponsored governance program for more than fifty sponsors of defined contribution registered pension plans. Most of these plans would be considered small plans with only a few reaching more than $20 million. Collectively the plans combine hundreds of millions in assets.
Fundamentally, the program was borne out of the realization that the time and financial investment for a small DC plan sponsor to completely follow the CAP Guidelines would far outweigh the value of sponsoring a plan for employees altogether. Rather than see sponsors abandon pension programs under the heavy weight of regulation, The Benefits Company, based in Windsor, Ontario, brought otherwise distinct and sometimes competing employers together in a joint effort to continue offering DC pension plans with industry leading governance.
In 2005, I had the good fortune to be asked to help build the program and facilitate the quarterly meetings. My friend Carolyn at Blakes was asked to provide a lawyer’s perspective on fulfilling both the legislative requirements already in place as well as the CAP guideline aspirations for defined contribution pension plans going forward. As far as I know the Greenlight Retirement Program® was the first of its kind in Canada. Others have followed with similar models, always with a focus on sharing the cost of administration with multiple employers – which was an idea that was reinforced in 2008 by the Arthurs Commission and again in 2012 with the introduction of Pooled Registered Pension Plans.
Governance meetings are held quarterly for half to three quarters of a day. Each quarter sees invited guests include recordkeepers, investment managers, and on occasion investment consultants to provide an independent appraisal of investment performance as a second set of eyes to the advice provided by recordkeepers. All plan sponsors are invited to all meetings although each meeting sees a limited number attending with the majority relying on the committee to lead the way in the effective operation of the program. This is an effort that a sponsor of a small DC plan would not be able to affordably make on their own.
The committee is made up of seasoned investment and insurance professionals, most of whom spend their time away from the committee focusing on meeting with individuals navigating the road to retirement with adequate savings. Over time, the committee has carefully balanced patience during short periods of under-performance with proactivity where poor past performance provides evidence that future performance is not expected to improve quickly. If I have learned anything in 15 years watching the committee make decisions, this is the hardest part of overseeing a pension plan – DC or DB. History shows that the committee is generally one or two quarters ahead of the recordkeepers in the recognition that a fund needs to be removed from the menu of funds offered to members. All this work is documented carefully in meeting minutes each quarter and provided to all plan sponsors participating in the program whether or not they were able to attend the meeting.
Next to choosing the right investments for employers to offer employees – helping employees choose the right investments for their personal circumstances and committing to the right level of monthly savings is the next toughest job for the pension industry. The final ingredient in the Greenlight Retirement Program® is the offer to have a licensed advisor meet one-on-one with employees each year for 15 to 30 minutes. I have been saying for more than two decades that leaving workers to solve the retirement savings and investment puzzle on their own is a recipe for disaster. I was an early promoter of Warren Laing’s solution (Open Access) of simplifying the investment challenge with a limited number of ‘risk profile funds’. This approach eventually caught on with the insurance company recordkeepers in the 2000s and today it is everywhere. I don’t have exact numbers, but it appears to me that about 80% of CAP members today choose one risk profile or target date fund and leave the investment management to the experts. When I worked at Mercer I was told it wasn’t possible to provide members with one-on-one advice on a cost effective basis so when I moved to Windsor in 2002 I was surprised to discover the folks at The Benefits Company were doing exactly that.
I still think defined benefit plans are the best solution for providing employees with adequate retirement income and getting them out the door in a reasonable time frame and almost completely avoiding the effort and anxiety of having members take responsibility for this complex task. But DB plans will only work for a minority of employers where some level of volatility in contributions can be accepted. For the remaining employers, regulatory burden makes a compelling case not to have any pension plan at all which is why we have so many Group RRSPs in Canada. As far as we have come with CAP plans, we still have a significant ‘under-saving’ problem and ‘early withdrawal’ problem which no amount of good governance is going to solve.
For the greater good, the pension industry needs to continue to build up DC programs to effectively deliver retirement income to Canadian workers. This means moving past good governance and sound investment options to a place where contributions are high enough to give plan members a reasonable chance of achieving a reasonable outcome. If we can’t do that, workers will be forced to rely on the government and whatever they scrape together on their own which is a solution that I don’t consider optimal.