We are often asked whether the ICPP is a good option for union members. For many unions in the Canadian private sector, the answer is yes. 

Union members in the public sector are often enrolled in large Defined Benefit (DB) pension plans. They receive pensions that are payable for their lifetime, and their spouse’s lifetime, with full inflation protection during retirement. Formulae under these DB pension plans are usually set so that the pension is dependent on total years of service, but a career employee often receives a total initial pension equal to about 70% of their earnings at retirement. The DB pension plan is managed by the plan sponsor and administrator with no input from individual members. Members do not make investment or administrative decisions.    

Thus, career union members in the public sector can expect a pension that allows them to maintain the same lifestyle during retirement and that never requires their management. These DB plans are undoubtedly excellent pension plans.

The problem is that DB pension plans are not generally available to union members, or anyone else for that matter, in the private sector. This is especially true of DB pension plans that provide, or even target, full inflation protection during retirement.

The ICPP was not designed to compete with a public service DB plan. It is, however, the ICPP’s goal to be a realistic option for the private sector by coming as close as possible to replicating the DB plan experience for our members, while being more affordable than any DB plan.  

Currently in the private sector, union employees are often covered through an industry wide multi-employer pension plan (MEPP).  The MEPP is usually sponsored and administered by the industry union.  For example, the carpenters union provides a MEPP for its qualified members.

A MEPP is frequently a negotiated contribution pension plan. The union and employer negotiate a contribution rate for the members. The actual promised pension for each member is calculated as a percentage of contributions made on behalf of the member. That is, the pension a member is to receive at retirement is not an amount based on years of service and a fixed percentage, as in a typical DB Plan, but based strictly on contributions and ultimately on how much those contributions have earned in returns. Hence, the pension payable on retirement isn’t as predictable as that of a DB plan – it depends on additional experience, including market experience.

MEPPs can also be referred to as target benefit pension plans. Under such a plan, a member’s benefits are targeted based on a set formula/contribution. The benefits may be changed at a later date subject to the MEPP’s ability to pay for all of the targeted benefits. This provides more certainty than a typical defined contribution plan, though still less than a DB plan.

The ICPP shares some commonalities with a MEPP. We also offer targeted benefits.  Our targets are set, however, on an individual member basis, not on a plan-wide or union-wide basis. This allows for the structuring of contributions and targeted pensions to better meet the specific needs of the individual member than a traditional target benefit plan might.

The ICPP and MEPPs have comparable governance structures as well. The ICPP is sponsored and administered by an independent not-for-profit management board, while MEPPs are managed by an appointed Board of Trustees. The ICPP structure thus provides more independence of management than the standard MEPP.  This allows any employer to join and receive equivalent treatment.

There are also important differences between the two plan designs. The ICPP manages and administers active member and pensioner interests separately. Under a MEPP, benefits and assets are managed together for all members. The ICPP uses assets set aside for pensioners to only support the pensions-in-pay. Under a MEPP, pensioner assets can be used to support active member pensions. Thus, the ICPP structure is better tailored to ensuring that the interests of pensioners and active members (which may not always be the same) are furthered separately when necessary.

The ICPP uses all contributions made on behalf of a specific member to provide for that member’s pension at retirement. Under a MEPP, contributions are commingled and some of one member’s contributions can be used to subsidize other members’ pensions.  Again, the ICPP structure is better tailored to ensure that the interests of the specific member are furthered independently from those of others.

To put this in context, carpenters often don’t mind subsidizing pensions for other carpenters, but can balk at subsidizing pensions for workers in other industries. MEPPs tend to work well in single industry situations but break down when the pension plan tries to expand membership. 

The design of the ICPP specifically eliminates unwanted subsidisation between members or member groups. An employer or union member can be assured that their contributions will be used to provide their pension, and their pension only.  Some situations call for subsidies between members and some do not.

The ICPP also allows members to set their own contributions individually based on their own personal circumstances.  Under a MEPP, member contributions are not variable.  Some individuals, even union members, need the flexibility offered under the ICPP.  For example, a member entering the workforce later in life may need to set aside more contributions today to catch up for missed service.

In other words, well-managed MEPPs can be good solutions, but may fall short in a number of contexts. The ICPP can therefore be a welcome alternative to a MEPP.

Private sector unions may also offer traditional Defined Contribution (DC) pension plans or group RRSPs for their members. In such situations, the ICPP should certainly be considered as an alternative.  The ICPP offers marked advantages over the typical DC arrangement. The ICPP manages investments and benefit targets on behalf of our members. The ICPP provides lifetime pensions directly from dedicated pensioner funds. The ICPP is multiple employer by design and uses its size to provide for a lower expense burden and therefore higher pensions. All of these features allow the ICPP to out-compete most small and mid-sized single employer DC Plans.

The ICPP also has tremendous flexibility and supports negotiated contribution solutions.  If a new collective agreement requires a change to contributions, we work with the company and union to implement that change. For example, new targets are set and new communications to members are created.

In summary, there are many circumstances under which the ICPP will be the right solution for a union. The ICPP was designed to mimic the best features of Defined Benefit plans enjoyed by public sector union members. However, our low-risk, low-fee arrangement will appeal to private sector employers. In short, the ICPP can offer a solution where both the union and the employer win.