Benefits and Pensions Monitor
Cheryl Neighbour
Executive Director, Operations University of British Columbia Faculty Pension Plan
Cheryl Neighbour started as executive director, operations, with the University of British Columbia Faculty Pension Plan in 2001. Before that, she was director of custody services for Royal Trust (now RBC Global Securities). Neighbour has been in the retirement industry since 1981. A member of both the Canadian Pension and Benefits Institute and the Association of Canadian Pension Management, Neighbour sits on council for CPBI and the planning committees for both organizations for their national conferences, which will both be held in British Columbia this year.
Although it’s the sixth largest Defined Contribution plan in Canada, all the administration for the University of British Columbia Faculty Pension Plan (FPP) is done in-house. As a result, the plan’s expenses have remained extremely low.
“It costs about 42 basis points to run the plan,” says Cheryl Neighbour, executive director, operations. This compares to 200 to 300 basis points to cover investment management and administration fees when outsourced. But, that is part of the FPP’s mandate: ‘to be the best plan for members, while using resources efficiently.’
However, being a small organization administratively (despite $950 million invested dollars, 2,600 active members, and 1,100 deferred members) also brings about its challenges.
In particular, Neighbour has a concern about the proposed Guidelines for Capital Accumulation Plans being put forth by the Joint Forum of Financial Market Regulators.
“The Joint Forum talks about the need for education tools and communication materials,” she says. “If you outsource administration, as most DC plans do, the tools and communication materials are readily available through the supplier. Whereas, we’re an in-house plan and we have our own system developed with what we feel are excellent education tools and communication materials, but we don’t have as many as some of the life companies who offer retirement plans. The plan feels communication and education are very important and much of the budget is spent on these initiatives, but we don’t have the capacity of the life companies.”
Nonetheless, the FPP has been developing some additional tools and devising ways to improve its website.
Unique Structure
Then again, the FPP is quite unique in its structure; perhaps it should be entitled to some dispensation.
It offers its members four investment choices: a balanced fund, equity fund, bond fund, and short-term fund, with the balanced fund as the default. The equity and bond funds use the same investment managers as the balanced fund, so they give members the option to personalize their asset mix while retaining the same managers. The plan has a board of trustees which determines the investment policy and goals for each of the options.
“Our balanced fund is made up of approximately 16 different mandates. And, the board decides which investment managers will be used and what their mandate is. What makes this plan a bit different than most plans is that the diversification is done for the member. The board spends a great deal of time at their monthly board meetings looking at the current managers and their related investment performance. The balanced fund is very well diversified. It includes Canadian and foreign equities, bonds, mortgages, real estate, and real return bonds and has performed well in bull and bear markets.”
The FPP only had one investment option, the balanced fund, when it was first started in the ’60s. The plan was re-designed in the early ’90s when the other options were added. “But still, 93 per cent of the money is in the balanced fund,” says Neighbour. This may be partly due to the default, but Neighbour believes it also because “members have a great trust in what the board is doing. They know that the trustees understand investments and have done a very good job of investing the funds.”
And, less fund options require less communication materials. Additionally, surveys of members indicate that they don’t always read the communication materials. “So, our plan has been designed to lessen the angst of the member who doesn’t feel comfortable making his/her own investment decisions. The balanced fund is the perfect vehicle for the majority of our members.”
Ultimately, the goal of the plan is to “provide a sufficient pension at retirement by investing in such a manner that the plan is well diversified with minimal risk. And, that’s the way the trustees approach it.”
LIF & RIF Payouts
The FPP is currently implementing a new initiative which takes this goal one step further – the inclusion of LIF and RIF payouts.
In February 2003, the federal budget proposed RIF type payments from money purchase plans.
The proposed changes have not been enacted as yet, but Neighbour anticipates that this new payment option will be available to FPP members by late summer. The plan has selected its supplier, but has yet to work out what each will take on as its responsibilities. However, the plan will be using its own in-house investment options.
“It’s a significant project. The FPP currently offers a variable annuity to retirees but, the LIF/RIF option provides another degree of flexibility to those members who want to stay with the FPP after retirement.”
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