First, the majority of plan sponsors (65%)say the CAP guidelines do provide clarity around the amount and type of information sponsors should provide to members. Interestingly, though, 13% of sponsors feel the guidelines do not adequately spell out their obligations, while 19% say they are neutral on this point.
Second, when asked if the CAP guidelines provide safe harbour for sponsors, 42% correctly identify that the guidelines do not provide a safe harbour. But 36% feel that by following the guidelines they will reduce their risk exposure.
Third, plan sponsors are clearly divided on the question of whether they should go even further than the CAP guidelines suggest. While 39% agree plan sponsors should go further, 42% disagree. At the same time, a majority(63%)say it is their moral duty to ensure information is received and understood by plan members by monitoring behaviour and tailoring communication strategies.
Combined, these results show that plan sponsors need to read the guidelines for themselves. The guidelines do provide long-awaited clarity around communicating with members, but they will not act as an ironclad defense in a court of law.
THE EDUCATION CHALLENGE
Not surprisingly, when asked what the single greatest challenge is with regards to their DC plans, 48% cite member education and knowledge, followed by employee interest and participation (25%)and communication of the plan (9%). The conclusion? The top three challenges for sponsors all revolve around adequately engaging members in their plans—no small feat.
Interestingly, when plan sponsors were asked where they would like to be in the future with respect to the information-education-advice spectrum, a full 25% say they would like to offer plan members access to advice within the next two years(this compared to 6% of survey respondents who currently offer access to advice).
Why do sponsors see themselves moving toward providing advice? The answer could be two-fold—a need to reduce liability and risk exposure, as well as a desire to help members make wise decisions for their retirement.
More than half(54%)of sponsors agree that member education will be a “necessity” in the future to avoid financial liability. That said, they are also keenly aware that they expose themselves to risk if they are deemed to have shirked their responsibilities.
The final part of the survey looks at financial advice. Advice was defined as “providing access to a supplier who would offer recommendations on investment strategy personalized to a member’s specific situation, needs, and long-term goals.”
Key findings include:
• 80% of sponsors agree that education will only benefit some plan members and that others will need access to financial advice.
• 47% feel the primary benefit of offering access to financial advice is better informed employees. Employee satisfaction and morale was cited by 11% as the biggest benefit, while only 10% feel that offering access to advice will prevent litigation.
• 35% of respondents say the biggest barrier to offering advice is the potential for litigation.
• 59% of respondents believe advice will be a “necessity” in future for sponsors to avoid financial liability. Moving forward, it’s clear the direction of the DC plan industry will be driven by sponsors’ genuine concern for plan members. This, coupled with an increased familiarity with the CAP guidelines and an expected shift on the information-education-advice spectrum, will enable plan sponsors to reduce their risk yet empower plan members with the necessary decisionmaking skills.
Lori Bak is vice-president, client relationships and marketing, with Sun Life Financial, Group Retirement Services in Toronto. Lori.Bak@sunlife.com
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