Employer Pension Plans in Canada’s Early Learning and Child Care Sector

This brief is intended to provide a short introduction into the types of pension plans available in Canada, and some examples of their use in the early learning and child care (ELCC) sector. It is not intended to be a comprehensive list of all pension programs available to the ELCC workforce, or to early childhood educators working in other sectors.

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Defined Benefit Pension Plan (DBPP)

A defined benefit pension plan (DBPP) provides a defined pension benefit that is received after retirement. The benefit is calculated using a formula based on years of earned pensionable service (the years for which pension contributions have been made), and on the employee’s pre-retirement earnings. For example, the formula could look like this: annual defined pension benefit equals 2 percent of the employee’s average annual salary for the five highest years of pensionable earnings. Both employers and employees put funds into a pension fund.

• The employee and employer contributions are determined in accordance with what the plan needs to pay the promised benefit.
• The money is invested and the employee is guaranteed the defined benefit regardless of the investment performance of the fund.
• The pension fund is governed by a governing body in accordance with government pension plan regulations.

Examples in the sector:

• As of April 1, 2024, employees of licensed child care centres in Nova Scotia will begin to be enrolled in the CAAT Defined Benefit Pension Plan. For more information, see the Policy Brief: Nova Scotia Pension Plan.
• Registered Early Childhood Educators (RECEs) employed at child care centres operated by Ontario public colleges are unionized under OPSEU and enrolled in the CAAT Defined Benefit Pension Plan.
• RECEs employed in Ontario’s full-day kindergarten are unionized and mostly members of the OMERS, an Ontario-wide defined benefit plan for public employees.
• Employees of Centre de la petite enfance (CPEs) and directly government subsidized private Daycares in Quebec are members of a defined benefit plan

Defined Contribution Pension Plan

Usually in a Defined Contribution Pension Plan, there is a fixed, defined amount the employee and employer contribute into the pension plan each year.

• Employees may be required to contribute a percentage of their pay into the plan and the employer must contribute to the plan and may match the employee contributions.
• The plan invests the contributions to the plan on behalf of the plan members. Some plans allow employees to choose the investments.
• On retirement the employee receives an amount calculated to be the value of the contributions at that time, taking into account the positive and negative returns on the investments.
• The money received on retirement is usually put into an annuity, locked-in registered retirement savings plan, or locked-in registered retirement income fund or a combination of these two options.
• The amount received on retirement is not defined in advance of retirement.

Examples in the sector:

• PEI’s provincial pension for employees in Early Years Centres, administered by ECDA

Group Registered Retirement Savings Plans

• A group Registered Retirement Savings Plan (group RRSP) is a retirement savings plan sponsored by an employer.
• The employee opens an individual RRSP but pays into it through their employer.
• The employee contributes earnings directly to the plan, and/or the employer makes contributions which are deducted from the employee’s paycheque. The details of group RRSPs vary by employer.

Examples in the sector:

• Many individual child care centres across the country offer Group RRSPs to their employees
• The Manitoba Child Care Association offers a Group RRSP plan to member centres and home child care providers

Other Variations

Simplified Money Purchase Pension Plan/Simplified Pension Plan (only available in Quebec and Manitoba)

Known as a simplified money purchase pension plan (SMPP) in Manitoba and a simplified pension plan (SIPP) in Quebec, these are a type of defined contribution pension plans that cover multiple employers and are administered by a financial institution, instead of the employer.

Generally they are designed for small businesses/organizations who do not have the administrative capacity to manage a pension plan.

Examples in the sector:

• Manitoba Child Care Association offers a SMPPP with Industrial Alliance for its member centres

Target Benefit Pension Plan

A target benefit pension plan combines elements of a defined benefit and a defined contribution plan.

• Like a defined benefit plan, contributions to the plan are set at a level estimated to be sufficient to pay the cost of the benefit, which is a target benefit rather than a defined benefit
• Like a defined contribution plan, the target benefit is not guaranteed. The only obligation is for the plan to pay out the value of the contributions on retirement. The employee, not the employer, assumes the risk of low investment returns through adjusted pension benefits., Funds are generally managed in the same way as in a defined-benefit plan

Examples in sector:

• Some staff in the early learning and child care sector are covered by the Multi-Sector Pension Plan, a target benefit plan that is sponsored by the Canadian Union of Public Employees (CUPE) and the Service Employees International Union (SEIU)

Summary Chart

Sources

Canadian Association of Pension Supervisory Authorities/ Association, Defined Contribution Pension Plans: Did You Know? Government of Canada, Employer pension plans

Healthcare of Ontario Pension Plan, The Defined Benefit Difference

Healthcare of Ontario Pension Plan, The value of a good pension: How to improve the efficiency of retirement savings in Canada