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News last month that the once-mighty manufacturing and innovation giant GE was planning to freeze its generous pension plan for some U.S. employees, came as little surprise to those of us in the accounting and finance industry.
GE’s official reasoning was a focus on slashing debt and reducing the billions of dollars in future pension obligations weighing down its balance sheet. But the underlying culprit was surely the unaffordability of these expensive plans.
Put simply, many companies are facing crippling legacy pension liabilities due to the fact that historical rates of return on investable funds were generally far higher 20 or 30 years ago than those expected today. This reality has left some corporate pension plans grossly underfunded as a result.


As such, large organizations have been pulling back on their gold-plated defined benefit pensions—which are based on an employee’s years of service and salary—en masse. Many are offering defined contribution plans and other alternatives in their place. Employees pick up a part of the tab for the former, delivering significant bottom-line savings.


That shift away from offering lavish benefits long ago trickled through to the small and medium-sized sector. Nowadays only a relative few small companies will offer a pension plan, defined benefit or otherwise. But at the medium-sized level, it gets more complicated.


What matters most is customizing any package to ensure that it works for your organization over the long term. The last thing you want is for a potentially beneficial talent-attraction and employer branding tool to turn into a financial albatross. Work with your accounting team to find a solution that makes sense—and be ready to embrace alternative pension options.

To be clear, the math is no less daunting—while these benefits are less costly once your workforce grows beyond 150 or 200 employees and premiums become more diffused, the added administrative burden can be overwhelming. Pension plans must be registered with provincial and federal authorities and come with regulatory compliance and reporting requirements. Even if those responsibilities are outsourced to less expensive third-party service providers, they can still be expensive and time-consuming. Some Chartered Professional Accounts have advised clients to hop off the pension train altogether.


That’s why many companies now offer alternative options such as RRSP-matching or group RRSP programs. These plans are administratively simple, cost far less and don’t come with the same legacy burdens as formal pension plans.


But mid-sized firms competing for talent in competitive markets—often against deep-pocketed multinationals—need to weigh their pension strategies carefully. A recent survey commissioned by the Healthcare of Ontario Pension Plan found that 80 percent of Canadians would trade better wages for a pension plan, underscoring their undeniable appeal to employees anxious about funding an eventual retirement.


If your business has reached the medium-sized threshold and is agonizing over whether to introduce (or sustain) an employee pension program, ask a few basic questions: Can you afford to maintain it given current cash flow and revenue projections? Is it a relevant tool for attracting and retaining top talent? Is it in alignment with your competitors’ entitlement offerings? If yours is an industry such as professional services or tech, where organizations are clamoring to hold on to precious talent, then perks and benefits are a critical part of our compensation package. If you operate in an industry with a glut of available professionals, then offering a lavish pension plan may not be as important.

Armando Iannuzzi is a tax partner at KRP LLP, a Markham, Ont.-based accounting firm for entrepreneurs.

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