PBI’s 4th Apples & Oranges Benchmarking Study- Collectively Bargained Pension Plans

PBI’s 4th edition of the Apples & Oranges Multi-Employer Pension Plans Benchmarking Study is now available. As the only Canadian study of its kind, specific to collectively bargained multi-employer pension plans, the 4th edition of Apples & Oranges examined:

  • 74 plans
  • 4+ million members
  • Over $95 billion in assets under management
  • Industries covered include construction, healthcare, telecommunications and numerous other sectors

Apples & Oranges observes plan design, investment strategy, risk management and this edition added a glimpse of pension plan initiatives brought on by the high inflationary environment.

The Study begins as apples and oranges and is transformed into apples-to-apples for comparison. The plan provisions from various participating pension plans come in all shapes and forms, hence the figurative expression, apples and oranges. In order to benchmark them against one another, plan provisions were converted to a consistent basis, i.e., apples-to-apples, to ensure a fair comparison.

Key findings

Figures shown below are extracted from the Canadian Pension Plan (CPP) sample report of the current study:

Figure 1 – Contribution rates – Money going into the plan has been expressed as the average contribution rate per hour worked. The Study spanned contribution rates ranged from $1 to $17 per hour, with an average of $5.26 per hour. At the end of the day, contribution rates are fixed as per collective bargaining agreements and the comparison of this one singular component is not representative of the overall benefit provided by the plan.

Figure 2 – Basic benefit rates – Annual pension benefit earned expressed as a percentage of the annual contribution remitted. Benefit formulas can be expressed in many ways including final average earnings, career average earnings, or as a flat dollar benefit. To compare the participating plans, basic benefit rates were converted to a uniform basis based on a percentage of contributions. Basic benefit rates ranged from 7% to 20%, with an average of 12% of contributions.

Figure 3 – Adjusted benefit rates – In addition to basic benefits, plans use various ancillary benefits to sweeten the pot for members. The most common form of ancillary benefit continues to be a normal form with guaranteed payments and/or survivor benefits.

To reflect the value of these ancillary benefits, the basic benefit rate was adjusted accordingly.  On average, ancillary benefits improved the basic benefit value by 35%. Adjusted benefit rates ranged from 7% to 32%, with an average of 16% of contributions.

Figure 4 – Risk Efficiency Index (REI) – The REI is a valuable tool for making important decisions regarding risk management. PBI has developed this unique concept to give plan sponsors an indication of the reward vs. risk trade-off within a pension plan.

When a plan decides to undertake some level of risk, through either the underlying investment strategy or some other aspect of the plan, they do so with the expectation of gaining some reward or additional benefit. Otherwise, why do it? This index can help your plan understand their risk-reward value.

The REI is defined as the Adjusted benefit rate per unit of risk. It’s an index that determines the “bang for the risk buck”- how well members are being rewarded (i.e. the value of the pension and ancillaries) for the level of risk being undertaken by the plan. The higher the REI, the more effectively the plan is putting its underlying investment risk to use. The REI for plans in the study ranged from 0.6 to 4.7, with an average of 1.7.

Inflationary environment

The past couple of years have been turbulent, to say the least, with inflation and interest rates on the rise combined with volatile markets. This round of the Study collected additional information on how multi‑employer pension plans have adapted to these extraordinary times.

Have plans adjusted for the inflationary environment?

Where does your Plan fit?

Using tools like Apples & Oranges will provide valuable insight into your Plan and where you fit in the universe of similar plans, or better yet, among your peers. It can help identify areas of strength and opportunities for development. The Study may spark a conversation that can help to validate your current commitments or explore alternatives on how to improve your results. As time evolves, what may have worked well 10 years ago for your plan may not be the best way forward. Staying current and thinking ahead will help your plan be better prepared for the future. And while there is no one-size-fits-all solution when setting funding and benefit objectives, all plans should be aiming to optimize risk for the benefit of their members.

This is the fourth iteration of the Apples & Oranges Benchmarking Study, and as with all studies, the underlying data grows richer as participation increases. If you would like to participate in the next study to increase your pension-related knowledge, you can sign up here.

Do you also have a Group Benefits Plan?


Find out how it compares to other plans in the industry by participating in our Apples to Apples: Canadian Member Benefits Benchmarking Study.

Visit our website or contact us for more information.