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Who Knew Pensions Had Feelings?

Hi everyone,

While writing my actuarial exams, I never once thought I should take a class on behavioral economics! I used to attend bargaining sessions years ago, and every so often someone would start to cry or get angry, and I would get rattled. Numbers have no feelings, and by default, actuaries have no feelings! So where does this emotion come from?   

For people fortunate enough to have a defined benefit pension plan, the dollar value of that pension often ends up being one of the biggest assets in their lives. With that being said, it’s not surprising that when defined benefit pensions are threatened, emotions rise. In Canada, pension reform has been happening since the early 2000’s, the same year I started my actuarial career (keep your comments to yourself!). The unfortunate part for me was that I had to deliver bad news quite regularly to boards, management, and ultimately members. One thing that was always consistent: it was always someone else’s fault. Employers pitch the position that they can’t afford the program due to increased costs/risk and reduced investment expectations. Employees blame contribution holidays that employers took 30 years ago. Actuaries today blame the actuaries in the past for using unrealistic assumptions. Politicians blame previous governments and think about the spin they can put on it for the next election. Everyone blames the regulators for not being flexible enough with their rules. 

The truth is, we are all to blame my friends. We are all in this together, so the only way out is to work together. In order to do so, we need to weed through all the rhetoric and get to the facts. This may come as a shock to you (I sure hope not!), but not everything you read or hear about pensions is true! A few months ago a friend of mine asked me about something he heard on “coffee row” regarding changes to his pension plan. More specifically, he had heard that the employer had stolen money from the pension plan in the past and paid out large bonuses to management, which is now forcing everyone to work 8 more years. Really? I know we pension people laugh about these types of stories, but they are real fears and emotions that people have and we need to be sensitive to this.  

For those of you who know me, I hope I’ve gained a reputation of being a straight shooter. I believe that if you provide people with the facts, they will adapt accordingly and accept it over time. On that note, defined benefit pension reform is here to stay. We’ve been riding 11 years of bullish markets and eventually markets will go down again. When they do, plans will need to reassess again. Changes may need to be made, more money may need to be thrown in. Investment structure may need to be readjusted. Work with your professionals to make sure your board, committees, management, and members are ready for it.    

Cool dad signing off.

Troy

Troy Milnthorp is a Fellow of the Society of Actuaries, Senior Managing Director of Corporate Fund Services at Saskatchewan Teachers' Federation, and Volunteer Content Creator for CPBI Saskatchewan. 

CLICK HERE to learn more about CPBI Saskatchewan!


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