PENSIONS
❮❮ S T R A T E G Y ❯❯
THE PUCK
STOPS HERE
A new DB pension plan helps NHL players stickhandle major disparities
in retirement income between its U.S. and Canadian teams
By Yaldaz Sadakova / Photography by Jaime Hogge
F
“This new
DB plan helps
to create parity
across the league”
— Colin Greening, Ottawa Senators
ind the remote, grab a beer
and get comfortable: the
NHL season has started.
While fans are glued to
their screens, the NHL and
the union representing the
players—the NHL Players’
Association (NHLPA)—
will keep crafting the long-term course
of the players’ new DB pension plan. The
arrangement helps to secure the futures
of both Canadian and U.S. players—and
eliminates major discrepancies in
retirement savings between them.
“We wanted to make sure that we were
prepared for life after hockey,” says Colin
Greening, left wing for the Ottawa
Senators and a pension trustee with the
NHLPA. The new pension plan took
effect early last year as part of the
collective bargaining agreement following
months of lockout.
Greening says the players made the
DB plan a priority during negotiations
because, despite their young ages, they
understood its value. “During the
negotiation process, we had guys who
were 18, 19 years old, who were looking at
the long-term advantages of a DB plan,”
he explains. “It’s not a common topic to
talk about when you are 18 or 19.”
The NHL had a DB arrangement years
ago but switched to a DC plan in 1986 as
part of a collective bargaining agreement.
The DC plan, administered by Sun Life
Financial, is now frozen and all new
entrants enrol in the DB plan.
In exchange for the new DB plan, the
players agreed to a smaller share of the
league’s revenue—50%, down from 57%
under the previous agreement, explains
Jessica Berman, vice-president and
deputy general counsel for the NHL.
“Money that would have gone to
salaries went to pensions instead,” says
Alex Dagg, the NHLPA’s director of
operations. The reason, she explains, is
that most NHL players have short
careers, so retirement planning is key.
Career spans vary widely—anywhere
from one to 20 years, Greening explains.
“But if you can get five, 10, 15 years
playing professional hockey, that’s
fantastic,” he adds.
Power Play
The new DB pension plan is qualified in
the U.S., so Canadian players are subject
to U.S. pension rules. Having a U.S. plan
makes sense, since 23 of the 30 NHL
teams are based there, says David
Vincent, a partner at Canadian Benefits
Law in Toronto. It also makes sense
because Canadian laws impose greater
restrictions on the amount people can
save for retirement through a DB plan—
a reality particularly ill-suited for short
NHL careers, he adds.
Canadian DB pension rules allow
people to accrue a pension worth no more
than 2% of their annual income, explains
Mitch Frazer, a partner at Torys LLP in
Toronto. “So if you wanted to get a
pension worth 70% of your preretirement income, it would take you
35 years of playing in the NHL—which,
obviously, is not possible,” he says.
The 2% limit exists because a DB
pension cannot exceed 70% of preretirement earnings, says Vincent. The
70% comes from multiplying 2% times
35 (the maximum number of years of
pensionable service that a Canadian can
accumulate). Someone who works more
than 35 years can’t count the extra years
for calculating pension benefits, he adds.
U.S. DB plan rules use a different
BenefitsCanada • October 2014 / 15
formula for calculating the maximum
benefit. But, generally, American limits
are higher, says John McGowan Jr.,
a partner at Baker & Hostetler LLP in
Cleveland, Ohio. Having an American
DB plan for all NHL players means
Canadian athletes can benefit from those
higher limits. “This new DB plan helps
to create parity across the league,”
Greening explains.
Also, Greening adds, the new pension
helps to eliminate the problems that arise
when athletes are traded within the
NHL. A player can start in Canada,
thinking he will retire with a certain
amount, but then he gets transferred to
the U.S., or vice versa. In the past, such
cross-border moves would change players’
pension calculations, explains Greening.
“If you are thinking that you’re going
to retire with a certain amount of money
and then you’re traded to a new place
where the plan terms change, that can be
frustrating for players,” he explains.
But how is it legally possible for
Canadian players—who pay Canadian
taxes—to participate in a U.S. pension
plan subject to U.S. tax and pension laws?
In order for the Canadians to receive
the benefits promised by the U.S. plan, they
need to have a special Canadian pension
arrangement—a retirement compensation
arrangement (RCA), says Dagg.
The RCA is not a registered pension
arrangement. It’s a vehicle high-income
earners use to accumulate a pension larger
than what the Canadian government
allows in registered plans. Having an RCA
means that the Canadian players have to
pay a significant additional tax to the
Canadian government, adds Dagg.
“It’s almost like a high-end savings
account,” Frazer explains. “The RCA is
designed to mirror for employees of
Canadian teams the benefits they would
receive if they were members of U.S.
teams, which would bring them above the
pension limits in Canada.”
Matching the Lines
While the new DB plan gives players on
both sides of the border the same pension
benefits, differences remain regarding the
amounts American and Canadian players
can put aside in voluntary retirement
savings vehicles, such as 401(k)s in the
U.S. and RRSPs in Canada.
As with DB pension plans, U.S. limits
for these vehicles are greater than
Canada’s. For example, the 2014 U.S.
limit for 401(k)s is US$17,500 for pre-tax
16 / October 2014 • BenefitsCanada
contributions and $34,500 for post-tax
contributions. In Canada, the 2014
annual limit for an RRSP is C$24,270.
Why does Canada impose greater
restrictions on sheltering tax through
voluntary retirement savings vehicles?
“The theory behind it is that, regardless of
whether you’re a member of a DB pension
plan or a DC pension plan or an RRSP,
everybody should be entitled to roughly
the same amount of contributions and
tax-sheltering of those contributions,”
explains Vincent. “Nobody should be able
to get an advantage because they are part
of a particular plan.”
South of the border, tax-sheltering
rules are more generous because “the U.S.
tax system is much less onerous to
high-income taxpayers,” Vincent adds.
The lower Canadian limits for
voluntary retirement contributions mean
that players on U.S. NHL teams have an
advantage over players on Canadian
teams, says Greening.
“We’re having ongoing dialogue with
the Canadian federal government, as we
would like there to be a level playing field
for Canadian and American NHL clubs,”
he explains. “In addition, players prior to
unrestricted free agency do not have
control over what country they play in.”
(An unrestricted free agent is a player who
can sign with any NHL club, with no
compensation owed to his previous club.)
Minding the Net
Despite the differences in the amounts
that Canadian and American NHL
players can put away voluntarily,
contributions within the DB plan work
the same way for all athletes.
Players collectively contribute
$38 million per season to the plan, says
Greening, adding that the first
contribution was in April 2013. The
$38 million comes out of the players’
50% revenue share at the end of each
season, he explains. After this annual
sum—along with other benefits costs—is
deducted from the athletes’ revenue share,
the rest of the money goes to player
salaries. Earnings vary, but every athlete
has a contract stipulating how much he’ll
earn per season. That money is paid out
semi-monthly during the season.
Under U.S. law, the plan can start
paying the maximum pension benefit to
players once they turn 62, explains
Berman. The current maximum benefit
under U.S. law is a little over $200,000 a
year, but that number gets adjusted
annually to inflation.
To get the maximum benefit, a player
needs 10 years of service or more, says
Berman. If an athlete plays for fewer
years, his benefit decreases. So, five years
of service would bring a benefit about
half the size of the maximum, she adds.
“There’s a lot of wear and tear that
comes with playing for 10 years, at
82 games a season,” McGowan explains.
“That money is more hard-earned than
people think.”
U.S. law also allows players to collect
pensions as early as age 45—but, in that
case, the maximum benefit is less than
$200,000, McGowan notes. “So it’s really
important for players to understand what
that promise is and what it isn’t.”
Changing on the Fly
Besides the fact that it has a unique
design and a young membership, the
NHL players’ plan is unusual in another
way: it defies North American trends.
“Most companies want to move away
from DB plans because of the volatility of
the cost,” says Frazer. “There’s a huge trend
in the industry toward DC. The NHL plan
would be the only one I can think of where
someone is moving from DC to DB.”
Although it’s a rare move within the
larger pension industry, DB plans are
more typical in sports, says Peter Landers,
a partner at Global Governance Advisors
(a Toronto consulting firm). Other major
sports leagues in North America—such
as the NFL and the NBA—have DB
plans, too, which seems to be the reason
NHL players bargained for it, he explains.
DB plans make sense in the sports
world due to the members’ shorter careers,
Landers adds. Having a shorter career,
and, therefore, a more limited time frame
to save, makes a guaranteed retirement
benefit all the more necessary—and DC
pension plans don’t provide that level of
guarantee, he says.
No matter how long the individual
careers of NHL players last, they now
belong to a DB plan that goes a long way
toward addressing pension inequities
north of the border. But outside of that
plan, Canadian players will continue to
live with greater restrictions on voluntary
retirement savings.
Meanwhile, the new NHL season is
here. Can you pass the remote?
Yaldaz Sadakova is associate editor of Benefits
Canada. [email protected]
Q&A
COLIN GREENING DISCUSSES THE NHLPA’S
COMMUNICATION STRATEGY
How does the NHLPA communicate
the details of the DB plan to the
players?
Each team has an NHLPA representative. For
example, on the Ottawa Senators, Chris Phillips
is ours. They also have an alternative
representative, which is myself. Players are
strongly encouraged to go to any meeting,
especially when it came to the negotiations.
The NHLPA has individuals who come to all the
[DB] meetings and are well versed in the issues
that we go over. The staff, along with the player
trustees, relays the information to the player
representatives.
There are a lot of avenues available in order
to get educated on all league issues. All of the
information is online; there are a lot of emails
that are circulated as well. Updates are also
available on the internal NHLPA website, and
we have a mobile app that provides union and
pension updates that can be accessed on
smartphones.
It’s all about clarity: about making sure that
everyone understands the issues so that when
it is time to vote, everyone knows the issues
fully. This communication allows players to
make well thought-out decisions.
Why do apps, in particular, make
sense for the NHL?
Since we have a unique working environment,
players are not sitting in front of a desk for eight
hours a day. They’re constantly travelling, so use
of technology is very important. Every year, the
new players coming into the league have grown
up more and more with technology, so our union
stays on top of the evolving technology in order
to meet the needs of our membership.
Early in the season, we will be launching a
new version of the mobile app [which offers
union and pension updates]. It will provide
enhanced capabilities for the players.
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