The trend toward DC plans creates a host of new challenges: for plan sponsors, whose members look to them for investment information; for governments under increasing pressure to ensure that Canadians have sufficient income in retirement; and for Canadians themselves, who need to take the initiative to ensure that they’re able to save a suitable nest egg. Participants in the DC track of the 2011 Benefits & Pension Summit heard from industry experts on how new initiatives in pension reform and plan member education and communication could help equip future generations with the tools they need to build retirement income.
PRPPs: The Future of Pensions?
In a panel on pension reform, the conversation focused on the potential impact of the pooled registered pension plan (PRPP) arrangement announced by the federal government in December 2010. While the PRPP was introduced to be an important retirement savings vehicle for the more than 50% of Canadians who are employed at workplaces that don’t offer an employer-sponsored plan or who are self-employed, panelists said it could prove useful for all Canadians—especially if PRPP regulations end up mirroring those of Quebec’s new pooled plan.
While Canadians will have to wait until legislation supporting PRPPs is introduced for more information, Quebec’s 2011 budget unveiled details of its voluntary retirement savings plan (VRSP). All employers in that province will be required to offer the VRSP to employees, and employees will be automatically enrolled into their employer’s VRSP (with an opt-out option).
Frank Swedlove, president of the Canadian Life and Health Insurance Association, said these two design elements would lead to a much higher level of participation if they’re incorporated into the PRPP and would therefore greatly increase the potential for saving. He noted that U.S. plans that have moved toward auto-enrollment have increased participation rates, ranging from around 50% to 90%.
“You get the participation rates up with auto-enrollment very quickly,” he explained. “Within a year or two of the introduction of [PRPPs], if you had mandatory [employer] participation and auto-enrollment, you could have well over 80% participation.”
Panelist Greg Heise, a partner with Morneau Shepell, agreed that if it is designed effectively, the PRPP could have an impact on increasing Canadians’ retirement savings levels. “We know that Canadians aren’t saving enough for retirement, and this is really an issue of, ‘If you build it, will they come?’ It will depend on how well you build it,” he said.
Heise added that harmonization and portability would be important for the success of the PRPP. Canadians will want to know that their investments in a PRPP will be easily transferable, both from employer to employer and from province to province.
Connecting with Plan Members
The economic downturns of recent years—from the tech crash at the dawn of the millennium to the Great Recession in 2008—have been a catalyst for weary pension plan sponsors to shift to DC arrangements. These events may also affect the behaviour of DC plan members, who have become nervous and confused about where and how to invest their pension contributions.
Kate Nazar, assistant vice-president, client relationships, group retirement services, with Sun Life Financial, said that a key focus for plan sponsors going forward will be finding more effective ways to reach out to members with information and education. Speaking in a session on effective plan communications, she explained that social media and technology create new opportunities.
In recent Sun Life plan information sessions incorporating the use of Research In Motion’s new PlayBook tablet, member sign-up rates have been as high as 100%.
For instance, social media and Web-enabled technology will have a positive effect on plan enrollment, Nazar remarked. More than 60% of Canadians have cellphones, a growing number of which are Web-enabled smart phones. U.S. studies have shown that use of Web-enabled devices during plan information sessions can increase on-the-spot employee enrollment to as much as 90%. Nazar added that in recent Sun Life plan information sessions incorporating the use of Research In Motion’s new PlayBook tablet, member sign-up rates have been as high as 100%.
Beyond enrollment, these technologies offer plan sponsors and administrators the ability to engage in conversations with members, which can be an effective way to combat the inertia that can set in when members receive plan information on paper and don’t have a quick, easy way to connect with experts for information and guidance on next steps. But Nazar cautioned that even the best technology may fail to meet objectives if it’s not tied to an effective communications strategy. “There’s so much information to share and so many great ways to get our message out. As a result, we get tempted to ignore the rigours of traditional communications planning and act on our urge to act on the ‘new,’ ‘cool’ or ‘wow.’”
Nazar outlined four elements driving any successful communications strategy:
1. Understand why you are communicating. This element involves identifying your organization’s main objectives.
2. Know your audience. It’s important to understand your workplace demographics—including age groups, education levels, work environments and language challenges, among other aspects—since they will play a role in choosing the appropriate voice and style for messages, as well as in determining which media to use.
3. Identify key messages. Even with a sound understanding of your organization’s objectives, “scope creep”—in which individual messages contain too much detail and are therefore ignored by your audience—can occur. Simplify messages to ensure that they achieve your objectives.
4. Determine how to communicate. This element takes into account demo-graphics and message scope, since certain messages for a particular audience might be best communicated online, while others might have more resonance on paper.
Financial Literacy is Critical
Getting plan members to act means first ensuring that they have at least a basic level of financial knowledge. With DC plans increasing in prevalence, plan members need a greater understanding of investment vehicles, market forces, rates of return and other concepts to feel comfortable that they’re making the right decisions.
While effective plan communications can help, financial literacy really needs to be a lifelong learning focus. CTV consumer affairs reporter Pat Foran was one of 13 Canadians selected in June 2009 to form the federal government’s Task Force on Financial Literacy. Foran said that in cross-country consultations held by the Task Force between 2009 and the release of its final report and recommendations last December, Canadians consistently sent the message that financial literacy should be taught in schools.
Speaking as part of a panel on financial literacy, Foran suggested that students in Grade 11 and Grade 12 should have classes focused on financial concepts such as buying versus leasing, interest rates and RRSPs. Since education falls under provincial jurisdiction, it’s up to each individual province to determine how to incorporate financial literacy into its curriculum. But Foran said that some provinces have already done this: British Columbia, for example, offers a financial skills course, called The City, to its high school students.
Panelist Matthew Rotenberg, senior consultant, communications, group savings and retirement marketing, with Standard Life, said that if Canadians learn financial concepts from an early age and receive clear, understandable information frequently throughout their lives, financial literacy on the whole should improve—as should Canadians’ ability to accumulate adequate retirement income. “[Literacy] is a very large problem; it’s more than just the materials. It’s societal and generational, and we need to work on a multidirectional basis to change it.”
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