By Sheryl Smolkin
Read this article and comments at Moneyville.ca
If Michael Nobrega, CEO of the Ontario Municipal Employees Retirement System has his way, life insurance companies and banks won’t be the only financial institutions permitted to sell individuals and groups the newly-created pooled pension plans (PRPPs). He thinks large public sector pension plans like OMERS should also be allowed to administer PRPPS.
PRPPs will be defined contribution pension systems offered by third party financial institutions that will be responsible for plan administration and fiduciary duty. This should make it fairly easy for small to medium sized companies or self-employed workers to establish a plan. Detailed regulations are still pending.
In a letter to Minister of State Ted Menzies last month, Nobrega suggested that if PRPPs provide limited or no choice in investment decisions, OMERS can deliver services for annual investment management expenses in the range of .4 per cent to .6 per cent.
Frank Swedlove, President of the Canadian Life and Health Insurance Association wants to see a level playing field for all institutions offering PRPPs. “There are capital requirements for insurance companies and banks. I’m not aware if there are similar requirements for public pension plans.”
Nobrega doesn’t disagree. “Our belief is that all PRPP administrators ought to be regulated under standard rules, and if there is a capital requirement, so be it. We are not asking for anything outside their norm.”
Nevertheless, he still thinks that OMERS has an edge. “We are a pension plan that provides retirement income to employees. It’s in our DNA. We only have one fiduciary responsibility and that is to the member and not to shareholder groups, like large insurance companies or banks.”
While OMERS is a defined benefit plan, it has the necessary systems in place to administer defined contribution arrangements. That’s because plan members are already permitted to make additional voluntary contributions (like RRSP contributions) to the OMERS fund and modular systems which can be easily modified have been developed for that purpose.
In 2009 Ontario legislation was passed allowing OMERS and the Ontario Teachers Pension Plan to manage both defined benefit and defined contribution pension funds for other Canadian organizations. Since then OMERS has been researching the Ontario Securities Commission requirements, developing the product and hiring the right people. This service is expected to launch in the first quarter of 2012.
“I know the banks and insurance companies have come after us [on PRPPS] but we are all part of the same financial ecosystem,” says Nobrega. “We just want to be part of the continuing debate and to the extent that we can be helpful to all the stakeholders in the debate, we hope we can have a voice.”
What do you think? Would you buy a PRPP from a large public sector pension plan?