Executives at Foresters Financial (the Independent Order of Foresters) are feeling a measure of relief in recent months after the company completed a transaction in which it purchased a buy-in group annuity from Sun Life, prior to exercising the option to convert the annuity to a buy-out annuity.

“Taking us through this process has really freed us up to think about the future,” says C.J. Heng, senior manager, insurance and pension investment assets with Foresters Financial. He adds that reinvesting in the business, possible mergers and acquisitions and investment in new lines of business have all opened up as possible avenues and opportunities for the company, now that the process of converting their defined benefits (DB) pension plan to a defined contribution (DC) plan with optional group Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) is nearly complete. 

The comments were part of a presentation hosted by Sun Life’s DB Solutions team, held March 25, 2025.

“It wasn’t the asset side that drove the decision. We were actually quite pleased and quite happy with the way the assets of the pension plan were being managed. I would say that it was more on the liability side,” he says. Heng also says that the decision to approach the market was driven in part because actuarial guidance available did not accurately represent or reflect Foresters’ workforce characteristics. “Taking it to market allowed us to essentially get a fair value and understand how much, exactly, our liabilities would cost.” 

This cost certainty appealed to the fraternal insurer. Optionality was another factor which aided decision making processes. “When you think about an option, its value comes from the ability to exercise it, but not necessarily the obligation to do so,” Heng says.

The risk appetite on the part of insurers providing group annuities was also higher. (Discussed in the recent Insurance Portal article Demand for group annuities surges to new record high in 2024.) “A lot of those elements came together for us,” Heng says.

Foresters’ de-risking journey: A timeline 
  • Foresters’ DB pension plan is established in 1945.
  • Plan is closed to new entrants in 2013.
  • Future accrual frozen in 2021. At the time the company has 720 active and deferred members and 550 retirees.
  • Company modernizes retirement savings plan to offer mandatory DC pension plan, augmented by optional group RRSP and TFSA.
  • Plan wind-up announced in 2022 with February 2026 announced as the targeted final wind-up date. Plan members begin making elections.

“The buy-in annuity was an important first step in cost certainty but also in keeping the plan member experience stable,” says Alison Harvey-Chuter, Foresters’ assistant vice president of wellness, pension and benefits. (A buy-in annuity makes payments to the pension plan, which continues to administer the plan. Under a buy-out annuity, the insurer selling the annuity also assumes responsibility for all customer service and administration.) “It was really seamless to the plan member.” 

She adds that all of the decisions made to date regarding the closure of Foresters’ DB plan and the launch of its DC plan have all been done with a great deal of thought and consideration. “Converting to a buy-out is really no different. A big factor is considering what the employee and plan member experience will be like,” she says. “Our retirees are a big client group. They’re people we’ve worked with and we speak to every day. It’s very, very important to us that they are left in good hands.” 

Transition provisions and a new focus  

To make the transition for plan members easier, as many were making decisions about what to do with their contributions for the first time, the company offered access to financial advisors and provided employer transition contributions.

“The focus of our team really switched to providing education, tools and resources to help employees make those important decisions,” Harvey-Chuter says.

What to expect 

The Foresters’ executives were also generous when sharing insight into the process. 

Heng points out that the first important consideration is how a would-be annuity purchaser is going to enter the market and with whom. “There are a number of different consultants,” he says. “They’re all very experienced, knowledgeable and capable.” 

Next, they advise those listening to the DB Solutions’ webinar to think about the process which begins after the annuity purchase decision is made. “It’s important to think about how you will fund the annuity. We ended up working very closely with our asset manager to liquidate and unwind our portfolio once that decision was made. It’s really important that you make sure to line that up since you don’t want a funding shortfall when it comes time to pay the premium,” he says.

The data collection journey is another element which must not be underestimated. Harvey-Chuter says the company employed search firms, the Canada Revenue Agency (CRA) and even private investigators in some cases to get up-to-date information. “Some of our plan is old and some of these elections went back decades,” she says. “There was a lot of work involved in making sure that all of our data was complete and accurate.” 

She says consultants provided a template so researchers knew exactly what data was needed. Following that, the company’s third-party administrator pulled together the initial data before Foresters filled in the blanks. “It was reviewed by our consultants who asked questions and did reasonability checks.”

Transaction day, meanwhile, is a date circled on the calendar, usually far in advance. Heng recommends all involved block the entire day for questions. “You’re making a fairly monumental decision for the organization,” he says. “There’s a lot of negotiations and there’s a lot of discussion.”