A framework for enhancing the management of multi-employer pension plans

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Description/Abstract

The current framework in Canada in which collectively-bargained, private-sector Multi-Employer Pension Plans (“MEPPs”) operate is difficult for a number of reasons including:
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The Administrator (i.e., the Trustees) has no control over the contribution flow
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Industries and employers within industries are subject to economic and business cycles and employers may enter or exit the MEPP relatively easily, leaving the MEPP with long-term obligations
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There is pressure to set benefits at levels that anticipate future investment returns and if such returns do not materialize as anticipated there can be severe financial implications for the plan
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There are inherent conflicts of interests among classes of members such as active members who continue to be voting union members and retirees and terminated members who are no longer represented by the union
The tools available for plan management include:
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Governance structure
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Plan design
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Investment policy
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Annuity purchases
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Benefit reductions
This paper builds on a previous paper entitled “Extending ERM To Multi-Employer Pension Plans” which was presented at the Society of Actuaries 2006 ERM Symposium. In addition to the ideas presented in that work, it discusses the question of whether MEPPs should be subject to solvency funding rules and the viability of a pension benefit protection fund offered by the private sector. It uses techniques of stochastic modeling to assess the financial viability of such a private sector pension protection fund.