DC sponsors must support their members in preparing for retirement
Do this test: ask your employees what type of retirement savings arrangement they have on their own and from you (their employer), as well as when and how much they will be able to draw from it. Their answers—or lack thereof—are your potential liabilities. So why not take a better route? Help your staff not only to plan for but also to reach their goal of retiring when they want, with the income they need.
After all, it makes good business sense. Almost half of U.S. workers worry about personal finances on the job, according to 2013 figures by Purchasing Power, a U.S. e-retailer providing voluntary benefits. Another segment of workers—almost 30%—deals with personal finances while on the clock. Of those, 46% devote two to three hours a week, on average, to the task. Things are likely the same in Canada, where 40% of workers live paycheque to paycheque and 73% have saved less than a quarter of what they’ll need in retirement, according to 2013 data from the Canadian Payroll Association.
Change the Culture
How can you help your staff to plan for and reach their retirement goals? Service providers have many retirement planning tools—get your employees to use them. DC sponsors know the difficulty of participant inertia. In response, many providers have introduced retirement tips on member statements. That’s a good start since, according to Benefits Canada’s 2012 CAP Member Survey, 60% of members say statements are their main source of plan information. But plan sponsors have no way of knowing whether members actually read their statements, let alone understand them. To be effective, any pension plan information that is provided must become knowledge and transform behaviour.
To make change happen, plan sponsors must understand that retirement planning cannot be reduced to making adequate contributions. Rather, it’s part of an employee’s attitude toward financial security. Unlike behaviour, which can be inhibited by punishment or induced with reinforcement, an employee’s mindset is ignited by the right situation, encouraged by workplace culture and shaped by education. That’s why retirement planning should become part of your culture.
This isn’t an overnight process, though. Sponsors must engage employees in retirement planning by showing them that the exercise is worthwhile and by offering the right tools. And, most important, plan sponsors should remove obstacles to action by offering to take members by the hand through seminars, one-on-one sessions, and an easy and expedient means to change contribution rates online.
Document It
Sponsors also need to help their members to develop a formal written plan so that members have a more realistic idea of what their retirement will look like. That plan should list all anticipated expenses, as well as projected income sources (Canada Pension Plan, old age security, government income supplement and personal savings). But this plan shouldn’t be a static piece of paper. It should be updated regularly with assessments of employees’ accumulated and projected savings. Plan members should be reminded periodically where they stand and what adjustments they need to make in order to reach their retirement goals. DB plans are assessed periodically; DC plans should follow suit. Finally, these formal retirement plans should be made available to members not only online but also in their statements.
Too many in the industry see the plan sponsor’s fiduciary duty as one of means rather than ends. But aren’t results the best assessment of means?
Jimmy Carbonneau is senior client relationship manager of national accounts, group retirement savings, with Desjardins Insurance.
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