Quote:
Originally Posted by phil235
I think that there have been quite a few conversions to DB in the private sector. In the public sector, I know that CMHC converted to DC, but then converted back to DB. A big reason was what I mentioned above - the legacy liabilities of the DB plan become bigger and bigger as the number of paying members shrinks. In the very long term it would reduce liabilities, but in the medium term it greatly increases the liabilities to the plan sponsor.
Another issue is that the public DB plans are huge factors in employee retention. DC plans do very little for employee retention, as employees can usually take the value of their plan and leave at any point. If you were to remove that retention tool from the public sector, you would likely see a decline in the quality of the workforce and an exodus of senior expertise to the private sector (see consultant conversation above). Personally I don't think that is in our interest as a country.
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My point is the conversions lower the contribution rate. Actually I know someone who worked at CMHC and as a new hire was on the DC. They had a choice of how much to contribute though the max was way lower than a DB and 3 or 4 % was minimum.
This risk of a actuarial loss isn't something companies worry about though sure it's a liability in theory for a profitable company. For the big govt funds in reality if it was short the indexing or other costs would be reduced as the whole economy would be in trouble at that point.
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