Providing retirement income . . . Benefits of a Multi-Employer Pension Plan

One may think that the traditional standalone pension plan is widespread in Barbados, and it should be. However, while some medium to large companies do offer these pension plans, it is estimated that about 70 per cent of the working population in Barbados is not part of one.

This sobering statistic suggests that a large majority of working Barbadians will be dependent on the National Insurance Scheme (NIS) and/or their own resources for retirement income. Imagine these workers covering a wide gamut of professions from skilled artisans to accountants, from entrepreneurs to engineers. If this situation is not addressed, we are likely to experience negative consequences in future years and decades. The future could be more dire for those workers neither contributing to the NIS nor saving privately. For some, the only option will be to continue working past retirement age.

In the context of this undesirable dynamic, a Multi-Employer Pension Plan (MEP) may present an attractive option for companies.

How does a Multi-Employer Pension Plan work?

It allows employees of two or more different employers to contribute to a pension fund. The employers participating in the fund do not have to be affiliated companies. This is what makes it multi-employer.

This is a somewhat new proposition for Barbados. Here we’re more familiar with the standalone pension plan in which the company appoints a board of trustees to be responsible for the administration of the plan. In other words, each company is the sponsor of the plan for their employees. And only their employees can join that plan.

Coming together under a single pension plan

A Multi-Employer Pension Plan is different. There is one pension plan but companies are allowed to join that plan even if there’s no relationship between them. The result is a coming together under the umbrella of a single pension plan, with each company having its own separate account. Furthermore, administration of the MEP does not rest with the company or employer but with a board of trustees, resulting in the alleviation of the burden of managing the plan.

With regard to small companies with no standalone pension plan, a Multi-Employer Pension Plan is a possible solution because it is a low-cost option. It could also be attractive to smaller companies that may have an existing plan but want to reduce the unit costs of operating that plan. This is because in the traditional, standalone plan the employer pays all costs including set up fees, whereas in the MEP there are no set-up costs and the fixed costs can be spread over a larger number of members resulting in a lower unit cost to both members and employers. Another advantage is that as the membership, meaning the number of companies or employers, in the MEP grows, the unit costs of running it will decrease.

In addition, the MEP also provides a “freeing up” of time and resources as the burden of plan administration is delegated to a third party – thus allowing management to concentrate on running their businesses.

Attractive to micro and small businesses

While it’s clear that MEPs are attractive for small and micro businesses, many would not have been aware that they have the option to establish a pension plan. They often think that fees and costs are prohibitive for their particular size and business operation. And they could be right.

Setting up a company plan can require anywhere in the region of BBD $10,000 with recurring annual fees and member fees. With the MEP, however, the one-off setup costs would not be applicable. In addition, annual costs would be in the region of BBD $2,000 and fees would be in the low hundreds of dollars per member, per year. The trustees would manage the plan, allowing the employer to focus on what it does best – managing business operations.

A final consideration is that companies with pension plans tend to be more attractive to potential employees, encouraging greater productivity and staff retention. To this end, a Multi-Employer Plan is certainly an option worth contemplating.

René Delmas

Pension Director

Fortress Fund Managers

In existence for over 20 years, Fortress Fund Managers has developed a reputation of being a trusted manager of mutual funds in Caribbean and global markets. Fortress is also a leading provider of pension management and administration services to companies of all sizes, and to individuals. Its slate of funds covers the asset classes of equities and fixed income, providing stellar performances over the years.