Carrick Talks Money: How to gauge the health of your company pension

Jeff Gray, VP at Proteus, chats with Rob Carrick of The Globe and Mail, on Carrick Talks Money, about how to gauge the health of your company pension.

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Rob Carrick: Jeff, how do I tell how solid my company pension plan is?

Jeff Gray: Well, two answers for two different types of pension plans. If you’re in a defined contribution plan, you know what’s in your account - it’s a pool of money and it’s very secure. The risks are related to whatever investments you have in your account.

If you’re in a defined benefit plan, you know what you’re going to get as a pension or much better idea, but you don’t know how much money is in the total pot to back these obligations.

Rob: And where do I find that information? I need to know: does the company have enough money to pay its pension obligation?

Jeff: Good question. The first place to start is to look at your annual disclosure statement for the pension plan. It will tell you what you’ve earned as a pension, what you will get for the rest of your working years. It will also tell you the the transfer ratio, which is the security or the funded status of the plan.

Rob: How does the transfer ratio work? What does it tell me about how solid my pension is?

Jeff: It provides a big picture of the plan. What the total amount of dollars that’s in the plan now or at a particular point in time, divided by the total amount of money that would be required to satisfy all of the obligations for everybody under the plan.

Rob: Okay, so dig out this number and that will possibly give you more piece of mind.

Jeff: Correct.

Rob: Thanks, Jeff!