The Mystery of Missing Pension Plan Members: The $3.6 Billion Problem

The Problem Nobody Sees

Nearly 200,000 pension plan members in Ontario alone are “missing,” leaving $3.6 billion in unclaimed assets, according to a report from the National Institute on Ageing.*

 

Who are these  “missing pension plan members”? They are individuals entitled to pension benefits but disconnected from the pension plan administrators due to outdated contact information.

 

The Beneficiary

Let’s consider “Mary,” a retiree who is struggling financially, unaware of a forgotten pension benefit from decades ago. This pension could have been from her own work. It could also have been a pension from her late husband “John,” from which Mary was due a spousal survivor’s pension.

 

Others who may be eligible for such benefits include ex-spouses, dependent children, or other heirs or beneficiaries. Also included are individuals whose plan sponsor has gone out of business without informing former employees how to contact their plan administrators or even situations where the plan administrator does not know that there is anyone entitled to a benefit. I have seen documentation from some clients’ pension plans that identify them as single even though they have been married for years.

 

The Administrator

What about “Alex,” the overburdened pension plan administrator? There is little value in continuing to search for missing members, which leads to frustration over the time and resources spent trying to locate members like Mary.

 

Stories like those from Mary are surprisingly common, as are Alex’s struggles from the point of view of pension administrators across the country. Why is this happening, and how did the system reach this point?

 

The Struggle to Resolve It

Causes and Implications

Disengagement

Evidence suggests that financial illiteracy is one of the leading causes of this lack of engagement among Canadians who are entitled to pension plans but who are unaware that this source of income even exists. You might spend a lot of time hemming and hawing over which tablet to buy, but if you have a defined contribution pension plan or group RRSP, how much consideration did you give to selecting the investments that are available to you? Of course, if you do not feel well-informed about why you might select one option over another, then it is no wonder that you simply select the default.

 

Worker Mobility

If you have held jobs with multiple employers and multiple locations, this can also be an issue. Imagine you are early in your career; you are probably at your lowest income level and the pension benefit may be quite small, leading you to ignore it without considering how it might grow over the subsequent decades. If you don’t update your contact information and are no longer in the same community, the “out of sight, out of mind” tendency that applies to most of us results in neglecting the opportunity to decide what to do with your pension. Given that Canadians frequently work 15 different jobs during their lifetimes, unless they keep on top of their pension benefits, it is not surprising that many people lose out.

 

Administrative Burdens

People who are entitled to pension benefits that they are not receiving may feel little sympathy for administrators like “Alex” in our earlier illustration, but they face high costs and low success rates in reconnecting with missing pension plan members. Imagine you took your first job when you were 18. Five years later, you left that job but did not do anything about your pension that you had started there. Let’s suppose you keep working, retire at 65, and live until age 98. That’s 80 years that a pension plan has required some form of administration and if you have forgotten all about that pension plan and have moved a few times on top of it, there is close to a century of pension administration that has almost certainly gotten your benefit tangled up in a confusing mess. Even at that stage, without contact, your pension administrator may find it difficult to wind up the pension because they are unable to confirm that you have died.

 

Tax implications

In addition to lost income for retirees or their survivors, governments also lose out on potential tax revenues when pension funds are unclaimed. As you may know, pension plan contributions are tax deductible. In practice, contributions are deducted from your pay before tax is calculated. The pension plan assets also grow on a tax-deferred basis. In retirement, however, the payments you receive from the pension are taxable income. If, however, no one can be found to receive the pension, no taxes can be paid, and the taxes are effectively deferred forever.

 

The Complexity in Canada

Some pensions, like those from the federal public service, or federally regulated industries like banks and airlines offer pensions that are under federal jurisdiction. However, most employers provide pensions under provincial jurisdiction. In other words, we lack a standardized approach. This lack of centralized systems for tracking unclaimed pensions compounds the problem.

 

Other Countries

Australia has the most mature government program to address the problem of missing pensioners. They have assigned the responsibility of their Australian Lost Members Register to the Australian Tax Office, the equivalent of our Canada Revenue Agency.

 

The United Kingdom is in the process of implementing what is intended to be a single access portal for all of an individual’s pensions, including both government and private pensions.

 

The initiative in the United States is described as a “Lost and Found Registry.” When fully implemented, it will be similar to Australia’s program, except that it will be run by the Employee Benefits Security Administration rather than the Internal Revenue Service.

 

These international solutions highlight possibilities for Canada but implementing them here is not without challenges.

 

The Vision for a Better Future

Proposed Solutions

The authors of this document suggest three policy options that could be adopted in Canada.

 

Federal Government Agency:  A centralized system could manage funds and benefits for missing pension plan members, collaborating with the CRA to contact and obtain payment instructions from them.

 

Industry-Sponsored Agency: An industry-led group could be set up to make agreements with pension plans for tracking, and optionally managing, the benefits and assets of missing members.

 

Pension “Dashboard”: A dashboard could be established to provide centralized access to all Canadian retirement financial resources, with the underlying data and assets continuing to reside with the plan administrator.

 

While none of these solutions is perfect, the one feature they have in common is the creation of a single entity with staff who are experts at searching for missing members.

 

The Path Forward

The research report set out the following five priorities for evaluating potential solutions:

 

1. Improving the likelihood of reuniting missing members or their estates with unclaimed assets,
2. Protecting data privacy,
3. Preserving members’ entitlements under the plan provisions,
4. Minimizing administrative and regulatory costs and burdens for administrators, and
5. Minimizing the impact on the government.

 

This table, adapted from page 34 of the report, shows how the three proposed policy options align with the priorities.

 

An Invitation to Action

Given the size of the problem and the number of people who are affected, there is a degree of urgency in reconnecting beneficiaries with their pension entitlements. While some kind of unified effort needs to be undertaken along the lines discussed in the report, there are things that people who may be affected can do to improve their situations now.

 

Practical Steps for Retirees and Near-Retirees to Reconnect with Forgotten or Lost Pensions:

 

Gather Your Work History:

• List all past employers, including smaller or temporary jobs, and approximate dates of employment.
• Search for old pay stubs, tax slips, or pension-related paperwork, whether stored in digital or physical files.
• Reach out to former coworkers who might have information about the company’s pension plan or plan administrator.

 

Contact Pension Administrators or Employers:

• Reach out to your former employer (if still active) or their HR department for information.
• If you recall the insurance company or financial institution managing the pension, contact them directly and provide your Social Insurance Number (SIN), dates of employment, and other relevant details.

 

Leverage Online and Government Resources:

• Contact the Canadian Association of Pension Supervisory Authorities (CAPSA) for resources and guidance.
• Contact provincial pension regulators (e.g., FSRA in Ontario, BCFSA in British Columbia).
• Check with the CRA for tax filings that may include pension contribution information.

 

Investigate Insolvent or Defunct Employers:

• Research whether another company acquired your former employer. The pension may have been transferred to the successor company or its custodian (typically an insurance company).
• Contact large Canadian pension insurance providers like Sun Life, Manulife, or Canada Life to trace assets.
• Explore provincial programs like Ontario’s Pension Benefits Guarantee Fund for defined benefit pensions.

 

Seek Professional Assistance:

• Consider a pension tracing service that can assist in tracking down pensions for a fee.
• Consult a financial planner who can help navigate the search process, interpret pension documents, and assess how the benefits fit into your overall retirement plan.
• Seek legal advice if disputes arise over entitlement.

 

Prevent Future Issues:

• Keep your contact information up to date with all current and former pension plan administrators.
• Document all pension details in a secure, organized format: plan numbers, administrator contacts, and balances.

 

This is your money. Don’t let it slip out of your hands without even knowing it was yours.

 

*The information for this blog post comes from the report by Shen, S., Chandler, D., Chen, H., MacDonald, B.-J., Brown, R. and T. Bronstein (2024). Missing Pension Plan Members in Canada. National Institute on Ageing, Toronto Metropolitan University.

 

This is the 272nd blog post for Russ Writes, first published on 2024-12-09

 

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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.

 

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