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Questions pertaining to the DB Pension Plan

How long has the DB pension plan been in existence and who administers it?

PAOC’s Pension Fund was established at the 1938 General Conference. It is administered by PAOC and specifically managed by the Pension Fund Board of Trustees, who are appointed by the General Executive, and work in accounting and legal professions and/or have expertise in the field of pensions and investments.

Assisting the Board is an Investment Committee, comprised of individuals with accounting, investment, and business expertise. This committee meets quarterly to assess and revise strategy as needed.

Why is the Pension Fund’s registration in Ontario?

The PAOC Pension Fund is a federally incorporated fund, registered in the various provinces across Canada with Canada-wide participation. For funding purposes, the Fund is required to be registered in the province where the majority of its membership resides, which is Ontario. However, it is provincial legislation in the province in which a member resides that dictates how their individual benefits are administered, such as at their time of retirement.

What are the advantages of DB plan participation for an individual?

  • A member’s contribution is considered a tax deduction, immediately lowering taxable income.
  • The eventual pension can be known, based on a specific formula applied to contributions received over the years. The current benefit ratio on contributions is 10%.
  • The pension is for life, with an opportunity to make provision for a lifetime pension for an eligible spouse at the time of retirement should the member predecease their spouse.
  • Income is stable throughout retirement.
  • Includes ancillary benefits, such as a disability pension if needed, and early or postponed retirement options.
  • A member’s participation in the plan is portable between participating employers.

What are the advantages of DB plan participation for an employer?

By participating in the DB plan with your employee(s), you show that you value the work they do for you and will have secure retirement income that will add to what may be received from government sources. There are no administrative fees to participate in the DB plan and our Pension Call Centre team is available to assist with any pension plan questions an employer may have.

How does a DB plan differ from an RRSP contribution or a savings account?

An RRSP contribution may see gains or losses depending upon equity performance. The eventual amount available to an individual at retirement is consequently unknown. The income from a DB pension plan is predictable as it is based on a specific formula that is applied to contributions received. The Fund offers a 10% benefit ratio, which means a retiree can expect to receive an annual pension equivalent to 10% of total contributions made over the years.

With a savings account, although funds grow as money is put into it, financial institutions have kept interest rates on such accounts low. Personal savings are subject to tax and are not being added to or matched by an employer.

With both an RRSP and savings account, the funds are available to the account holder at any time when needed.

With a DB plan, wages are effectively deducted from pay now (and at least doubled with a matching employer contribution) to be dispensed to the employee at a later date – retirement. It is different from an RRSP or savings account, as the contributions are specifically set aside for retirement.

We suggest that a good financial plan for retirement includes contributions towards personal savings, investments and participation in an employer sponsored pension plan, if available.

How much of the Pension Fund portfolio is invested in church mortgages?

Participation in the Pension Fund supports PAOC Mission through investments in church/ministry mortgages, which account for at least 40% of the DB plan investment portfolio, depending on demand and other strategic criteria at the time.

How has the Pension Fund’s designation as a SOMEPP strengthened the position of the Fund and reduced the likelihood of any future employer liability to submit special payments?

In 2020, the PAOC Pension Fund was granted status as a Specified Ontario Multi-Employer Pension Plan (SOMEPP) by our regulator, the Financial Services Regulatory Authority of Ontario (FSRA). Notice of our new status was sent to our members and all participating employers.

Before obtaining SOMEPP status, we were required to assess the plan on both a going concern and solvency/wind-up basis, even though the Pension Fund has no intention of winding up.

The SOMEPP status is good news because it means the Pension Fund is now only required to assess the health of the plan on a going concern basis. This significantly reduces the likelihood that employers will be required to make future special contributions to the plan since the going concern ratio of the plan has consistently remained strong and over 100%.

How is the Pension Fund equipped to deal with downturns in the market?

All investments are subject to market downturns, which historically have corrected themselves. The Pension Fund is no exception. The Pension Fund targets to have approximately 35% of its investments in equities, with the remainder in investments such as church mortgages and alternative assets which are less volatile. This is a conservative approach to investing that minimizes any impact of downturns in the market.

Is the Pension Fund an indexed plan?

The Pension Fund is not an indexed plan and does not automatically initiate an annual Cost of Living Allowance (COLA). This is the norm for the majority of private pension plans that do not have the huge membership of government sponsored pension plans and their steady source of income from taxation.

The Pension Fund Board of Trustees, in consultation with our actuary, conduct an annual review of the plan to determine if it is in a financial position to offer a COLA. Pension recipients are notified by mail or email of the Board of Trustees’ decision.

Can members transfer their DB plan contributions to the DC plan if they so choose?

DB plan contributions cannot be transferred to the DC plan.

An employer decides what to include in an employee’s benefit package. If an employer offers both DC and DB plan participation to its employees, a DB member could choose to suspend their contributions to the DB plan, become a Dormant member and start to participate in the DC pension plan. However, it is in the best interest of a DB plan member to continue to contribute to the DB plan so that their known retirement income stream will continue to increase.

If an employer only offers DB plan participation as part of its employee benefit package, then the option mentioned above is not available.

Can an employee participate in both the DB and DC plan at the same time?

Technically, yes, if the employer offers participation in both pension plans.

For the employer – Offering participating in both pension plans will involve:

  • Remitting contributions and file information to PAOC for the DB plan.
  • Remitting contributions and file information to Canada Life for the individual’s RRSP portion and employer DC portion.

For the employee – Note that both DB and DC contributions go against RRSP limits.

  • It will be important to keep RRSP limits in mind when considering how much can go into the employer and employee portion of the DC , after the DB portion has been deducted from the RRSP limits.

Why is DB plan participation still an excellent choice for younger millennials who don’t traditionally stay with the same employer throughout their working career?

The DB pension plan is a multi-employer plan, with over 400 participating employers across Canada. As such, it is uniquely positioned to allow its members to continue to contribute towards their pension as they transition from church to church over the course of their career. Should a DB plan member transition to a non-DB church, most employers are willing to initiate DB plan participation and match an employee’s contributions, knowing the advantage that including pension plan participation as part of a benefit package can make to attracting and retaining valued staff members.

Even contributing at the minimum percentage, the younger a person starts their DB contributions, the greater the eventual lifetime pension income. Millennials, who are fast approaching age 40, will presumably live longer and need more income in retirement to cover expenses. They still have a good 25 years or more of working life ahead of them. To contribute to a DB plan that offers a predictable benefit ratio on contributions is even more of a benefit to younger people than ever.

Questions pertaining to the DC Pension Plan

How long has the DC pension plan been in existence and who administers it?

PAOC’s Defined Benefit (DC) Pension Plan was launched at the 2020 General Conference. It is administered by BMA Benefits from Saskatoon, SK.

Why is PAOC offering a DC Pension Plan?

The PAOC Pension Fund Board of Trustees saw the need for an alternative savings option to offer to its members. A decision was made to approach BMA Benefits to work alongside the Board and Canada Life to create a new RRSP/DCPP that would give church employees the opportunity to explore more flexible savings options.

Does the DC plan also require employer participation?

In order for an employee to participate in the DC plan, employer participation is required. The employer contributions are invested at the direction of the Pension Fund Board of Trustees, while the employee portion is directed into an RRSP account of the employee’s choosing.

There is one exception to this rule.
A DC pension plan member could continue to make voluntary contributions to the RRSP portion of their pension without employer participation in the DC pension portion if the member left the employment of the original sponsor (employer) and is no longer with a DC pension plan employer.

How are DC funds invested?

The employer contributions will be invested at the direction of the Pension Board of Trustees. It is assumed that investments will be made proportionately in asset classes that are nearly identical to those of the DB plan. Following an increase in DC plan membership, which could take approximately 3-5 years from its inception, those assets in the fixed income asset class will be transferred to the PAOC mortgage fund as appropriate.

What investment options are available to DC pension plan members for their RRSP portion?

The employee RRSP account is the property of the employee to choose investments from a wide-ranging fund lineup. Investment options are available in all major asset classes and risk tolerances, and BMA offers no-cost professional financial advice to any DC member that requests it.

What are the requirements for an employer to set up a DC pension plan for their employees?

Canada Life has a three-member threshold per employer. The minimum percentage of contribution with the DC plan is 2.5% from the employee, matched by 2.5% from the employer indefinitely.