No Pension Plan, No Problem?
From Canada’s finance minister to the former chief actuary of the Canada Pension Plan, politicians and pension experts across the country have been hailing in recent months the importance of an expanded CPP.I've known Jean-Pierre Laporte for a few years now. He used to work at Bennett Jones where Paul Cantor, PSP Investments' former chairman of the board, still works. He has been on top of pension issues for a long time and along with a few other prominent members, has been instrumental in shaping the Liberal Party's pension policy.
Jean-Pierre Laporte, chief executive officer of Toronto-based Integris Pension Management Corp., may be forgiven if he says, “I told you so.”
Mr. Laporte, a former pension lawyer with Toronto firm Bennett Jones LLP, has been expounding for years on an expanded CPP. He wrote about it in 2004 for Benefits and Pensions Monitor magazine, and his ideas formed the basis in 2011 for the federal Liberals’ “secure retirement option for Canadians” plan.
Driven by his conviction that something needed to be done to address the expected shortfall in Canadians’ retirement incomes – especially Canadians without an employer-sponsored pension – Mr. Laporte quit his job two years ago and founded Integris Pension Management.
“I was a pension lawyer on Bay Street servicing very large public and private sector plans, and I realized there was no pension plan available for lawyers and for many other Canadians who don’t have access to an employer-sponsored pension plan,” says Mr. Laporte. “There I was, a pension lawyer without a pension plan – your typical story about the shoemaker whose kids go barefoot.
“I thought, there’s something wrong with this picture.”
Mr. Laporte, who had worked with pension organizations such as Ontario Teachers’ Pension Plan, began exploring the idea of a supplemental pension plan that could provide Canadians with retirement income in addition to their CPP benefits. His early research led him to individual pension plans, or IPPs, which are basically similar to the pension funds owned and administered by large employers and unions but made available to individuals with incorporated companies.
“But I discovered that while IPPs are amazing products, they had a lot of issues,” Mr. Laporte says. “One is a lack of flexibility; IPPs are a defined benefit plan and you have to keep making contributions even in bad times, which are not ideal for people with a cyclical business.”
IPPs are also complicated to set up and manage, requiring the services of an actuary, an investment manager and a custodian to hold the funds, says Mr. Laporte. A lot of IPPs also call for the appointment of three trustees, who would have legal and fiduciary obligations.
It’s a lot of work – and expense – for a small business owner or incorporated professional such as a doctor or dentist, says Mr. Laporte.
Drawing on his deep knowledge of the country’s complicated pension laws, Mr. Laporte set out to develop a product that, like IPPs, would give incorporated individuals such as entrepreneurs, health care professionals and, yes, lawyers access to a registered private pension plan, but one that would have none of the encumbrances of an IPP.
The result: a registered pension plan that is owned by the incorporated individual but is set up and administered by Integris. Everything that would typically be needed to create, administer and manage a registered pension plan – from actuarial services to fund management and trustee oversight – would be provided by Integris and its partners, which include Quebec City-based Industrial Alliance Insurance and Financial Services Inc., and Toronto’s Meridian Credit Union, one of the country’s largest credit unions.
“It’s totally turnkey,” says Mr. Laporte, who owns Integris together with three other shareholders, one of whom is Gavin Graham, former director of investments at BMO Asset Management, part of Bank of Montreal.
While there are some similarities between this product and an IPP – such as tax-deductible contributions – the Integris plan is not simply an IPP packaged with services, says Mr. Laporte.
He points to benefits offered by an Integris plan that are not available in an IPP, including the ability to switch each year from defined benefit to defined contribution, as well as lower management fees resulting from Integris’s ability to negotiate group discounts.
“We’re able to generate economies of scale, something you can’t do with an IPP because they’re retail products,” says Mr. Laporte. “With the Integris personal pension plan, what you essentially have is a private-sector version of large, well established plans such as OMERS (Ontario Municipal Employees Retirement System) and the Ontario Teachers’ Pension Plan, with all the best practices from these plans but designed to be accessible to individuals.”
Even with such a sound concept to build on, Mr. Laporte says creating a marketable registered personal pension plan kicked up more than a few challenges.
“We were dealing with intense conflicts of interest between potential partners that could help us distribute this,” says Mr. Laporte. “If you’re an investment adviser who has a relationship with a particular investment firm, you’re not likely to tell your client to take their money from the investment firm and put it in this registered personal pension plan held by another custodian – it’s not going to happen.”
To address this challenge, Mr. Laporte made the Integris plan open to any custodian. In addition to its current partners, any investment firm in Canada can sell an Integris pension plan to its clients.
The lack of information and knowledge in the investment industry about pensions in general also presents a challenge for Mr. Laporte and his team, which includes 13 employees.
“I think a lot of people aren’t getting what we’re offering, and some can’t even believe this type of pension plan is possible,” says Mr. Laporte. “But those who do get it almost invariably say they think it’s brilliant.”
Mr. Laporte says it’s too early to discuss revenue information for Integris. He points to the successes his company has achieved so far: an agreement with Industrial Alliance and a global recruitment firm to sell the Integris plan under their own brand, and a pilot project with Meridian Credit Union to identify members who would be eligible for the Integris plan.
“There are over 1.2 million Canadian professionals and business owners today who could have an individual pension plan and they don’t,” says Mr. Laporte. “We’re in undiscovered country with huge potential.”
Jean-Pierre reached out to me to get the word out on Integris Pension Management Corp., the firm he founded with three other shareholders, including Gavin Graham, the former director of investments at BMO Asset Management. I knew about this venture for some time and think they're on the right path.
Last Wednesday, Jim Leech and Jacquie McNish were at the Osler law offices here in Montreal promoting their book, The Third Rail. I wrote a bit about it when I discussed Canada's huge pension crisis. It was a very interesting presentation as Jim and Jacquie were accompanied by an actuary, members of New Brunswick's union that fought for a shared risk plan, and lawyers from Osler.
At the end of the presentation, I got up, introduced myself, and commended Jim and Jacquie for writing this important book. I told them that it should be compulsory reading in high school economics classes or university economics courses. But I also had some reservations with their solutions. Told them flat out: "I don't believe in hybrid plans, it's either defined-benefit all the way or forget it. Shared risk is fine but hybrid plans shouldn't be discussed."
I also told them that their cutoff point for enhancing the Canada Pension Plan is arbitrary and leaves far too many high income professionals like doctors, lawyers, dentists and others out of the loop, unable to enjoy the benefits of enhanced CPP. My thinking is simple and logical, the more you make, the more you should contribute to CPP, the higher the benefits you collect in retirement.
I also told Jim and Jacquie that in my ideal world, companies wouldn't be in the pension business. There are some great pension fund managers at private companies but these individuals should be working on behalf of all Canadians, not just their company. We need to enhance CPP and create several large well-governed public pension funds that invest on behalf of all Canadians.
In my ideal world, there wouldn't be a CPPIB, Ontario Teachers, Healthcare of Ontario Pension Plan, AIMCo, OMERS, PSP Investments, etc., just a few large, well-governed public pension funds that invest on behalf of all Canadians. We can predetermine the point at which assets are cut off (say $200 billion) and create new entities as the population grows.
I'm tired of people telling me pension solutions are complicated. No they are not, the problem is too many people have their hands in the pension jar and they have an interest in maintaining the status quo.
Back to Jean-Pierre Laporte and his firm Integris Pension Management. I think they are on the right track, focusing on a niche pension market that hasn't been properly served. I like the concept except it isn't my preferred route. I prefer forced savings through enhanced CPP and large well-governed public pension funds which can invest in public and private markets around the world.
Also, I would recommend Integris offers their clients choice in terms of their investment managers (they might do so already). For example, doctors who love MD Management, one of the best managed funds in Canada, can continue using their services. But I like the concept of pooling resources and offering tax advantages through personal corporations. My family and friends that are doctors have incorporated and they can use this expertise to better manage their retirement.
Below, Bob Rice, general managing partner with Tangent Capital Partners LLC, discusses pension risk transfers with Deirdre Bolton on Bloomberg Television's "Money Moves." I told my readers a long time ago that pension risk transfers are a boon for insurers and I see this trend continuing in the U.S., less so in Canada.