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% of the working population in Barbados are 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, where 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.
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 a 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. We recently launched the Fortress Multi-Employer Pension Plan and like a standalone pension plan, it is a defined contribution plan where fixed amounts or rates decided by each employer are used to fund retirement.
Fortress MEP presents attractive pension plan option
As Barbados continues to experience challenging economic circumstances, the Fortress Multi-Employer Pension Plan is a possible solution for small companies that have no standalone pension plan, because it is a low-cost option. The Fortress MEP would also be attractive to smaller companies that may have an existing plan but want a reduction in 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 a MEP grows the unit costs of running it will decrease.
In addition, a 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 businesses and small businesses
While it’s clear that MEPs are attractive for small and micro businesses, many of them 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.
Transparency and compliance are increasingly important components in maintaining trust in the corporate and financial worlds. The Fortress Multi-Employer Pension Plan is no different and measures will be put in place to ensure transparency. Trustees, for example, are appointed and have a fiduciary responsibility to ensure that the plan functions according to the rules.
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, the Fortress Multi-Employer Plan is an option worth contemplating.