Finance Committee on April 22nd, 2010

Evidence of meeting #11 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was benefits.

A recording is available from Parliament.

On the agenda

Retirement Income Security of Canadians

MPs speaking

Also speaking

Serge Cadieux National President, Canadian Office and Professional Employees Union

Lee Lockwood As an Individual

Norma Nielson Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Tony Wacheski As an Individual

4:55 p.m.

Conservative

Kelly Block Conservative Saskatoon—Rosetown—Biggar, SK

Okay.

I also want to go back to either your first or your last recommendation, depending on if we are going to follow along with David Letterman's pattern. You said support research that will provide better linkages between data sources for registered pension plans, group and individual RRSPs, and other assets. You said the work that was done last fall was an important first step, but leaves many questions unanswered or unanswerable, and that's a little concerning to me. Would you be willing to expand on what you mean by that?

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

Certainly. The research that was done in the fall for the ministry was the first time the databases that are available out there actually put pension plans and group RRSPs in the same study. They're among some of the first studies that look at what other assets people have, perhaps investing in their family farm or a small business, or in their home equity, and trying to factor. It's very difficult to factor assets into income, because it very much depends on the choices that individuals make. It becomes much more complex, but there has been some very good work done in NBER—the National Bureau of Economic Research—in the U.S. and other places to try to begin to build models like that.

As I intimated, there is some ongoing work at StatsCan that for the first time is trying to look at not the replacement ratio of individuals but the replacement ratio of couples. Very, very often, retirement decisions and retirement savings are not factors made by individuals; they're made by a couple. So if one half of a couple has a very good defined benefit pension plan, the other person may not spend nearly as much time worrying about retirement savings. They may put the education savings in that spouse's name.

So there's a lot of evidence that people make decisions about retirement as a couple, and we're just beginning to have data that looks at household level income and retirement savings and replacement ratios rather than looking at it for individuals. In terms of the individual data, if you have a homemaker who has no income, she or he could have been named on a spousal RRSP over the years, or maybe the spouse's pension is sufficient with spousal benefits that they've determined that's not necessary.

There are a lot of reasons where zero might be the right number if you're only looking at an individual and not at a household. So those are the kinds of questions we cannot get answered, given the state of the data.

5 p.m.

Conservative

Kelly Block Conservative Saskatoon—Rosetown—Biggar, SK

Thank you very much.

5 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you, Ms. Block.

We'll go to Mr. McKay again.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Professor Nielson, your number one request was for an automatic enrolment. Are you suggesting that it should be a legislated automatic enrolment?

April 22nd, 2010 / 5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

No. I'm suggesting that the plan sponsor be given the option of including the negative option, as you so eloquently referred to it. The plan can be designed with an opt-out kind of feature.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Why can't that be done today?

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

Well, if it's illegal in one province, then it's a challenge for a national employer to try to do it in one province and not in the others.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Is it in fact illegal?

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

I don't know. It could be a liability fear issue as well, that if they opt in and then things go badly....

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Is it a liability?

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

It may be tied to the fiduciary liability concerns.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Would it be a liability issue, or would it be a sales issue?

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

Sales from whom to whom?

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Well, you're going to have to convince a sponsor to do this, and then he or she, the sponsor, is going to have to get his or her employees on side to agree to negative option billing.

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

The evidence is that you'll have about a 40% higher participation rate with an opt-out type design, where doing nothing gets people in rather than having doing nothing getting people out.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

And what would be the basis of being able to get out of the plan?

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

In a typical employment situation, it would be going to the HR office or ticking a box on a form. It's about as much work as getting in, but it seems to be a barrier to humans. It never quite makes it to the top of the list.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

So you wouldn't make the barrier that difficult.

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

No.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Presumably, if you changed jobs you'd want to be able to get out.

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

It really has nothing to do with vesting, once you're in the plan. It has to do with whether you're automatically in or automatically out when you meet your six months or when you first come on payroll.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Is this, by definition, limited to defined contribution plans?

5 p.m.

Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual

Norma Nielson

No.

5 p.m.

Liberal

John McKay Liberal Scarborough—Guildwood, ON

Could you do it by a defined benefit plan?