Hitting Canada's pension plan jackpot

So back at the end of September, a year into the job and as I was on the tail end of paying down the last of my credit card debt, I found out that my full time job offers a pension plan for full-time employees. But unlike some places of employment that automatically signs you up and makes deductions off your paycheque right away into the plan, at our place of work you have to opt into the program, which anyone can do upon working three months at the company.

Which makes sense, I thought. Sometimes people have other needs or uses for the money that is taken from your paycheque and at least this option allows people to choose how they would like to set up for retirement. To be perfectly frank, the money that is now going towards my pension was money that was going towards my credit card, which to me at the time was a much bigger concern for me then retirement.

But then I saw what kind of pension my job was offering to its employees. And then I started kicking myself.

I went with the Draco!facepalm because kicking myself in the butt is anatomically impossible.

In Canada, there are two main types of pension plans: a defined benefits pension plan and a defined contributions pension plan. And while they are both pensions, they guarantee different things for those that are invested into it.

A defined benefits plan is one in which you are guaranteed an income during your retirement years, so in advance the contributor already knows how they are benefiting in advance. You may contribute your earnings, but your employer is in charge of investing your contributions, essentially doing all your dirty work for you in order to ensure there is money available to pay for your retirement within the plan. And what if there is a shortfall or if an investment went south causing a shortfall? Your employer is made to cover the difference.

A defined contributions plan is different. While your contributions as well as your employer's contributions are guaranteed, your retirement income is not. Like RRSPs, it is up to the individual contributor to choose their investments and upon retirement, their contributions and the money earned on their investments becomes your retirement income. But the onus is on the employee to keep an eye on their investments and to ensure growth over that time.

It doesn't take a rocket scientist to guess which one is the better of the two. But the unfortunate reality is that the defined benefits plan is a dying breed in Canada due to the gradual shift from defined benefits to defined contribution plans for most businesses. The reason for this is simple: as the number of people who have retired on the plan goes up and ostensibly the number of people contributing to the plan goes down, the cost of maintaining a profitable pension becomes increasingly difficult for businesses and often forces them to have to dig deeper and deeper into their own bottom line in order to fulfill their guarantees. By switching to a defined contributions plan, employers no longer have to carry the burden of failed investments; the employee is on the hook for that.

So... guess which one my job offered to their employees?

In the words of my supervisor, my employer offers one of the best pensions in the entire country. And I lost nine months of contributions (and therefore future salary) to it due to simple ignorance.

But as they say, better late than never, and arguably speaking, I was hardly truly late on the contributions at all given that it's been less than a year's time that I lost. And it is not as if they had changed the plan between when I qualified for it and when I did finally opt in so really, all I missed out on was a few months of taking part.

Granted, life is unpredictable and who knows what will happen in the next 37 or so years when I retire, and for that I contribute to an RRSP still, if at a pitiful rate. But for now, I can at least take some comfort in knowing I am in a good spot retirement-wise. Which took a huge load off my back and gave me some peace of mind.