Making a comeback

Defined benefit (DB) pension plans are starting to make a comeback as law firms continue to look for competitive advantages when hiring. A growing number of employees are eager to secure financial security in retirement, especially with the threat of rising inflation and a looming recession. 

Litigator Kathryn Carpentier of CaleyWray in Toronto says that implementing a defined benefit plan "for staff and associates has certainly had a positive impact on employee retention, which is very important to the firm." The feedback so far "is that many employees view the pension plan as a critical benefit for their future, particularly associates faced with paying off student loans and exorbitant housing prices." 

Often referred to as a traditional pension, a DB plan provides a specified payment in retirement, while a DC plan provides an unknown ultimate payout. For years, businesses moved away from DB plans and chose defined contribution (DC) plans—funded primarily by employees—instead. Employers are looking once again to the more desirable DB pension plan as a compelling attraction and retention tool.

According to a Hub International 2022 Outlook study, 70% of employees would give up a raise in favour of a workplace pension plan or a better one. And research done by the Healthcare of Ontario Pension Plan (HOOPP) indicated that 82% of employees agreed that a pension plan increased their loyalty to their employer. 

Many law firms don't have the resources to set up their own DB plans—it can be costly and complicated. But once the College of Applied Arts and Technology (CAAT) opened up access to its DB plan in 2017 beyond educational institutions and created an automated, turnkey solution for businesses of all sizes, lawyers and law firms saw the benefits and started signing on. The DBplus plan has no administrative or overhead costs—employee contributions simply need to be matched. There are no compliance or fiduciary risks and no balance sheet impact.

Ever since the Hamilton Community Legal Clinic implemented CAAT's plan, staff lawyer Andre Bomé says, "people are happy, and I haven't heard a complaint right from the beginning of the process." 

Bomé, who has an MBA and studied portfolio management and securities analysis, was a member of the committee that examined various pension plan options. The choice was narrowed down to CAAT's DBplus pension plan. Normally, employer and employee each contribute half of the employee's after-tax income to the plan. In the Clinic's case, it had previously provided 5.5% of salaries into its pension plan, so when it joined DBplus, employees had to contribute only 4.5%. 

Bomé strongly advises firms not to run their own plans. "'I can do better on my own' is literally the 'I'm taking Ivermectin for my Covid'—it's the finance equivalent of that."

Law firms of any size can join the DBplus plan, says Dawn Marchand, President & CEO at Lawyers Financial in Toronto. Sole practitioners must have a professional corporation (PC) in place since "the professional corporation acts as the employer and the lawyer is the employee."

Lawyers Financial is a not-for-profit organization that started over 40 years ago as an insurance committee of the CBA and finds the best insurers and investment companies that work with them to develop products that meet the legal community's needs. It offers life, health, disability, travel, critical illness insurance, employee benefits, home and auto insurance, and has offered DBplus since July 2020.

Marchand emphasizes two important reasons to choose the DBplus plan: it's multi-employer and jointly sponsored. More than 200 diverse employers are now utilizing the plan, "so the risk is not with any company, it's with CAAT." She adds that being jointly sponsored is even more important. A pension plan comprises multiple layers of governance, including sponsor committees and boards of governors and directors. The representation is split evenly between employer and employees, so all decisions are made with both groups' benefits in mind. 

Marchand points out that the DBplus plan is entirely turnkey. "There's no administration; there are no overhead costs. You make the contribution, let's say it's 3 or 5% —you get up to 5%. It's the same process as making a deduction of CPP." The employer simply matches employee contributions. Another benefit is that there is no fiduciary risk. "You are not on the hook for these pension plans."

Despite all the positives, some law firms have been reluctant to adopt the DBplus plan, says Randy Bauslaugh, counsel to McCarthy Tétrault in Toronto. They think "it sounds too good to be true. But the fact is, it will provide a much superior plan for employers who wish to provide a pension program." 

Bauslaugh says the plan will deliver at least twice as much retirement income as the average DC plan and "will relieve employers of a lot of ancillary consulting, communication, financial planning and other administrative costs and administration. It will dramatically reduce their potential fiduciary liability. It will provide their long-service employees who should be, or who would like to be, transitioning to retirement with enough financial certainty about their future retirement income to make that choice confidently."

Bauslaugh joined the plan through his PC in 2020 and says several lawyers at his firm with PCs have also joined. "It's the most cost-efficient way of providing pensions, and it's the least risky."

Bauslaugh adds, "If you're going to provide pensions to employees, this is the best way to do it."