Carrick Talks Money - How can I tell how good my company pension plan is?
Rob Carrick: Martin, how can I tell how good my company pension plan is?
Martin Leclair: First of all, in Canada, only 30 per cent of the population is covered by a workplace pension plan, whether it’s a defined benefit plan or a defined contribution plan. If you have a defined benefit plan it will promise you a retirement income for life when you retire. I would definitely look at the funding status of the pension plan. If the funding status is healthy, then you can be assured that you are going to be paid for life.
Rob: And by funding status you mean its ability to meet all of its obligations?
Martin: Now for defined contribution, which seems to be much more popular these days…
Rob: Right, many more people are in them.
Martin: I would look at two things, the contribution formula - so the employer contributes on your behalf and in some cases would match any contribution that the employee makes.
Rob: Alright, so what’s a rough range for how much employers kick in for every dollar I put in?
Martin: I would say on average, in Canada, it’s probably around two to three per cent employee contribution plus the match.
Rob: Okay, so you can compare it to that rate to see how you’re doing. Okay, now what about on the investment selection side, what should I be looking for there?
Martin: In a defined contribution plan, the investment options that are being offered to the plan members are being monitored by professionals. And the fees – and that’s very important here – the fees within the context of a pension plan, they can be 75 per cent cheaper than the retail space.
Rob: So that’s very desirable because the cheaper the fees are, the more returns you’re going to keep.
Rob: Now, is there ever an option to put extra money into a pension plan and is that a good idea?
Martin: Let’s go back to the match. If the employer is matching any additional, voluntary contribution, then I would say don’t leave money on the table, maximize your contributions.
Rob: Alright, great advice. Thanks, Martin.
Martin: Thank you.