As plan balances plummet, employees are worried about their future retirement. Could advice be the ace in the hole for employers?
“You got to know when to hold ’em, know when to fold ’em…” Kenny Rogers famously gave this advice in his classic hit. If only more investors had recalled this helpful nugget before last year’s equity market meltdown.
Today, we’re seeing a renewed emphasis from pension plan sponsors on managing their risk exposures. And that same focus extends to members. While they used to be thinking about retiring early, they’re now more concerned with keeping their retirement savings—and their jobs—intact.
But how will they achieve their goals, and does the employer have a responsibility to help? That’s the slippery slope of “advice” that capital accumulation plan (CAP) sponsors struggle with.
Should they offer members access to advice on the plan’s investments? On retirement planning in general? Do they have a fiduciary duty to do so? What are the risks if they do nothing?
Not only does our article on investment advice on page 20 explore some of these issues, we asked related questions in our most recent Survey of CAP Members (November 2008).
The 2008 survey found that plan members clearly need help when it comes to their CAPs. While 47% of respondents said they have an excellent or very good understanding of the amount they’ll need to retire, they also said they’re expecting a 19.7% rate of return. (It would be interesting to ask this question again in 2009.)
And plan members are interested in having access to advice—as long as it comes at no cost to them. Seventy-one percent said they would use a company-provided qualified individual whom they could contact free of charge. That number drops to 18% if they were required to pay for it themselves.
As a plan sponsor, you have a number of questions to ask. Should we offer access to financial or investment advice and shoulder the costs? Should plan members pay a portion? Do we refrain and risk possible litigation from members retiring with insufficient income? Do we have a moral obligation, or is it purely a business decision?
However you approach the advice issue, industry experts agree: you need to have a plan. Because whether or not we take it, we all look to others for guidance. Even Kenny Rogers.
Alyssa Hodder is Editor of Benefits Canada.
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the March 2009 edition of BENEFITS CANADA magazine.