With DC plans, there’s no guarantee that members will end up with a sufficient retirement income at the end, warns Michelle Loder, Canadian DC business leader with Towers Watson Canada Inc. However, monitoring the plan’s performance—not necessarily based on a retirement benefit adequacy promise but rather on how plan members will fare over the long term—can help employers monitor how effective their plan is, especially as market conditions and investment behaviours change over time.
“Many sponsors designed their plans in economic conditions that are probably very different than the economic conditions that are in place today—different capital market expectations, different inflation, different annuity purchase rates,” she says. “Things that they might have considered at the time of design have shifted, and I think it’s important for plan sponsors to re-evaluate that as time goes on.”
If your plan isn’t delivering as planned, Loder suggests the following possible solutions.
Tweak the plan design
This could include changing the formula to encourage higher employee contributions, moving to a DC registered plan instead of an RRSP type of program, restricting withdrawals or establishing mandatory participation and/or auto-enrollment.
Revise your investment structure
Loder suggests introducing ready-made portfolios, examining how competitive your fees are and/or offering segmented communication in order to address the varying demographics of your plan members.
Offer modelling tools
“Members need to get the message that the plan is not designed to give you a retirement that’s necessarily ‘adequate,’” says Loder. “But I think a modelling tool or some type of reporting or communication that gives them a snapshot of what it is on target to achieve for them is important knowledge for the member to have.”
Watch the video to find out what else Loder has to say.