Fair is Fair
Like many, I have found myself caught up in the moral dilemma referred to as ‘vaccine priority’ these past few weeks. While we may all agree that the primary object of a successful, and optimal, vaccine rollout strategy is to save lives, I find the debates surrounding who exactly is in a ‘priority population’ fascinating.
About a month ago, during one of our now infrequent in-person gatherings with my in-laws – which consists of a walk in the park with masks on – I learned that my mother-in-law’s younger brother received his first dose of the vaccination. And while this individual is much like my in-laws, retired and reasonably healthy, he was prioritized because he lives in Canada’s North.
It was at this time that I initiated what can only be described as a serious lapse of judgement – I started to engage in a debate with my mother-in-law… And while I can’t recall the exact conversation, I asked her what she thought about her brother getting prioritized ahead of her, and her response was that she thought it was ‘fair’.
I remember thinking I should rejoinder with the question ‘is it fair that he gets prioritized over frontline essential workers in, say, the Region of Peel?’ – to which I can name quite a few, and none of whom had received their first dose of the vaccination at that time – but fortunately my better judgement kicked in, and I kept my mouth shut (which is something I need to work on more often, to be honest).
Clearly, optimizing the vaccine rollout is an important task – and one that requires analysis.
While it is well established that healthcare personnel and residents of long-term care should be the first individuals to receive the vaccination – determining who goes next is not so easy. Do you prioritize the elderly who are at a greater risk of the adverse effects of COVID-19? Or do you prioritize essential workers who are more susceptible to transmit the virus throughout the community?
To some, this has an easy answer – you protect the elderly as they have a greater risk exposure to the virus. However, others suggest that minimizing community spread by inoculating essential workers will have a greater impact on society as a whole.
Perhaps my fascination with this topic is because there are many parallels to the work we do as actuaries. Building models, drawing on inputs, making assumptions, performing the analysis, and communicating the results – let alone debating the merits of what is ‘fair’.
However, upon greater reflection, I have come to believe that this debate isn’t all that relevant. While yes, governments need to establish a priority, and this will have real consequences for some people – I am not sure there is much value in arguing over whether one vulnerable group gets the vaccination a couple months ahead of another group.
Debates over fairness occur in our industry as well.
Defined benefit pension plans often have varying degrees of cross-subsidies that occur between its members. For instance, plans with generous early retirement subsidies will provide greater value to those who retire early at the expense of members who don’t; plans that provide better spousal benefits will provide greater benefits to retirees who are married than to those who are single; and members who terminate before retirement age usually do not receive any inflationary increase on their pension after they terminate.
Even with defined contribution pension plans, while the costs of a DC plan may be fixed, the outcomes are not – with a notable difference being that females, on average, need to accumulate more savings to accommodate their longer lifespans. Further, members who do not maximize their employer match are unfortunately subsidizing the members who do.
As with anything, there can be differing opinions on the fairness of these various features of pension plan design.
To a large extent, I would suggest that instead of focusing on the minutia, we would be better off focusing on the bigger issue of encouraging, and expanding access to, good workplace pension arrangements.
However, in pensions, one cannot side-step questions about fairness, and focus only on the bigger picture noted above. Given the long-term nature of pension plans, and the fact that it comprises a significant portion of total compensation, an employer should understand the various ways their plan members will perceive the fairness within their plan.
In many instances, employers designed their pension plans in a certain way to encourage certain behaviour. However, as business conditions change, and member perceptions of fairness change, an employer may need to reconsider a plan design feature. A classic example of this is the early retirement subsidies that were introduced to pension plans a generation (… or two or three…) ago. Such a design feature was ‘in vogue’ in a previous era – but it may no longer meet the strategic interest of plan sponsors as they potentially deal with labour shortages and increasingly value the skillset their more experienced workers bring to the workplace. Further, it may no longer be considered fair that employees who do not qualify for the early retirement provisions subsidize those that do.
Rules and Court Cases
To a large extent, the legislation and regulation of pension plans ensure a certain level of fairness is maintained. This is achieved by imposing rules on plan design terms like eligibility, vesting, retirement ages, spousal benefits, as well as by putting conditions on how plans can be changed, and how the benefits are funded. While compliance with legislative minimums is required, it is not enough.
The recent Fraser v. Canada decision by the Supreme Court gives an excellent example of how the fairness of a pension plan can be challenged in court. Briefly, in this case, the Supreme Court decided in favour of three women who claimed that it was discriminatory that their period of reduced work while on a job-sharing program was ineligible for buy-back in their employer’s pension plan. Interestingly, the plan allowed other periods of suspended or unpaid work to be eligible for buy-back, but part-time work was ineligible. When the employer decided that the reduced work while on a job-sharing program was akin to part-time work and ineligible for buy-back, the claimants brought forward an ultimately successful Charter claim that this was in fact discriminatory.
While the notion of fairness may seem intuitive – it is not always easy to identify inadvertent discrimination or determine appropriate comparisons. Perhaps, being perfectly fair is an elusive goal, but pension plan sponsors should try, and where possible, make adjustments to the plan design to make them fairer.