Canada’s CAP suppliers had a pretty good year in 2010. Overall, the Top 10 CAP Providers showed double-digit growth (up 16.1% from 2010), as did the Top 10 DC Plan Providers (up 15.9%), the Top 10 Group RRSP Providers (up 15.8%), and the Top 10 DPSP Providers (up 16.2%). But persistent market volatility presents challenges for all CAP stakeholders going forward—from individual plan members worrying about whether they will have enough for a comfortable retirement, to CAP providers and sponsors working to ensure that members save enough.
Amid the current financial uncertainty, member engagement remains a top issue—and a major driver of new plan designs and innovative communication tools to boost members’ understanding of why and how to save for the future.
Addressing the disengaged
According to Benefits Canada’s 2011 CAP Member Survey, 36% of DC or group RRSP plan members are considered unengaged. There are many possible reasons: some people say they are too busy to sit down and weigh the different investment options, others prefer to pay down debt rather than contribute to pension plans, and some feel they are still too young to make retirement planning a priority.
At the same time, market volatility is making it more difficult than ever to build an adequate nest egg. “People believe they need to save money, but they still don’t get what amount they need for retirement, and the current fiscal climate doesn’t do much to encourage savings,” says Claude Leblanc, vice-president, business development, group savings and retirement, with Standard Life in Montreal. “But when interest rates are 1.5% and there is virtually no return on equities, people have to put a lot of money on the side to build their retirement savings. The trouble is that many people don’t have more money to save, so it becomes a Catch-22. A large part of the population responds to the situation by freezing like a deer caught in the headlights on the highway. And you can’t engage people when they are frozen with fear.”
David McCullagh, national practice leader, communications, with Buck Consultants in Toronto, agrees that prolonged slow growth in the markets has created a lot of fear among CAP members. “It’s a real challenge when you are trying to engage and help members save for their retirement plan,” he says. “Some members go the advice route, and others try to do it on their own. Still others just go into default because they are too overwhelmed. We need to find a way to take the fear out and talk to people about the reality of the situation. Sure, you can take the doom-and-gloom approach, but if you invest for the long haul and get proper advice, you can build a retirement to meet your needs.”
Accompanying these trends is an unbending reality that underscores the need for retirement savings: unprecedented longevity means that savings may have to last 20 to 30 years past the traditional retirement age and will need to pay for housing as well as increased medical costs. “A ratio of 1:1 between work years and retirement years is not likely achievable. As such, individuals will have to save a higher percentage of their pre-retirement income, adjust their retirement lifestyle expectations to better match their resources or work longer,” according to Jeff Aarssen, vice-president, group retirement services, sales and marketing, with Great-West Life in London, Ont.
But, says Joan Johansson, president of BMO Group Retirement Services Inc., one bright spot of the economic turmoil has been a heightened level of attention on retirement savings issues. “We find that this awareness factor is stronger for younger people today than when the boomers were young, and they are more likely to engage earlier in their long-term economic planning.”
“We need to find a way to take the fear out and talk to people about the reality of the situation” – David McCullagh, Buck Consultants
Tom Reid, senior vice-president, group retirement services, with Sun Life Financial in Toronto, also sees members showing more interest in their plans. “We’ve seen that our Web hits and call volumes are up as people want to check on their balances and get reassurance,” he explains. “I think plan members’ reactions reinforce how strong the CAP model is. Plan members haven’t been leaving plans or stopping their contributions, and we are not seeing any radical changes in investments. Rather, there’s been a remarkably stable pattern of contributions—with just a small fraction of investors going from active funds to money market. We saw the same situation a few years ago.”
The key to this heightened awareness and member activity is sustainability, says Karrina Dusablon, director, education services, with Desjardins Financial Security in Montreal. “Our society is still very much one of short-term, instant-gratification thinking—which, unfortunately, doesn’t fit with a healthy retirement. We have to entice members to review their retirement package. Then, if they show the faintest interest, encourage them to keep looking. In time, perhaps we’ll have a number of members excited about their retirement plan, but it is a long road to engagement. We need to be patient and have a structured, customized communication strategy that will enable the plan sponsor to monitor results. Most important, we need to emotionally connect with employees by integrating retirement planning into the workplace culture.”
New communication solutions
Plan member education is, of course, a fiduciary responsibility for plan sponsors. But Peter Arnold, investment practice lead with Buck Consultants in Toronto, worries that sponsors aren’t doing enough stakeholder analysis to develop effective communication plans for members. “They say it is too costly but, in reality, it is too costly not to do it,” he remarks. “If someone comes back and says that the plan wasn’t communicated to them in plain, clear language, plan sponsors could be held liable.”
And providers have all kinds of options available to help sponsors get the message out to members: everything from traditional paper booklets, statements, websites and face-to-face meetings, to the latest online retirement modelling tools, widgets, social media discussions and YouTube videos.
In the current period of low returns, plan communication is shifting away from the intricacies of investing toward a clearer emphasis on saving. “One of the top issues is to make people understand that early enrollment, maximizing contributions and taking advantage of employer matching are key to having enough money at retirement,” Arnold explains. “Investments draw a lot of attention and can have a gravitational pull on committees, but the ability to accumulate wealth long term really depends on higher contributions. At the end of the day, you get a better result if you put in $2 versus $1.”
The realization that lay people are unlikely to really understand the complexities of the market is changing member education strategies, notes McCullagh. “We need to strip out the complexity and get rid of the jargon,” he says, adding that a more simplified approach to member education seems to have a positive impact on members’ levels of interest and activity. “One of our clients—which had never had a question to the call centre before—is now getting lots of calls asking questions. This is a good trend.”
“If someone comes back and says that the plan wasn’t communicated to them in plain, clear language, plan sponsors could be held liable” – Peter Arnold, Buck Consultants
Standard Life, among others, is taking a similar tack by simplifying investment education to help boost employee understanding of basic retirement savings concepts. “We provide one-on-one consulting and annual checkups where members can get help structuring a financial plan. Rather than focus on funds, we help members understand their risk profile. And, since asset allocation is the biggest factor, we’ve developed an asset allocation tool,” says Leblanc.
Benefits Canada’s 2011 CAP Member Survey revealed that printed materials, emails, websites and in-person meetings are members’ preferred methods for receiving information regarding their
DC pension plan or group RRSP. But evolving technology is rapidly creating a wider range of options for reaching out to members. “Technology is behind everything we do today, and it allows us to be more innovative,” Leblanc adds.
Time to get social?
From a trend perspective, demographic changes are likely to drive greater use of technology for plan member communications. McCullagh stresses that, within a decade, the millennial generation (those born between 1980 and 1995) will represent 50% of the workforce. “The workforce is changing, and it isn’t good enough to send out a booklet and expect people to read it,” he says. “Plan sponsors have got to do more, yet there are still companies that don’t get Web 2.0 [interactive Web applications such as social media, blogs, wikis and video sharing]. They may talk about social media, but they don’t always understand how they can use it.”
However, not everyone is convinced of the usefulness of social media or mobile technology in a pension plan context. As Dusablon points out, the majority of those polled in the CAP Member Survey said they aren’t interested in using technology this way. Nearly three in five (57%) said that social media shouldn’t play a role in providing information or education about their retirement savings plan, and 65% said they don’t want to use mobile devices to access their investments or financial accounts.
“But the situation may change in the next few years, and we still need those opportunities,” Dusablon adds. “At the end of the day, it’s important to look at your demographics and tailor the communication plan to meet their needs.”
Johannson agrees that it is early days in terms of adopting social media applications and mobile devices such as smart phones and tablets as key tools for communication with CAP members. “These options certainly have their appeal and are evolving continually to be more effective. However, they can also be a distraction—in effect, the media becoming the message rather than the intended content. When you add in any security concerns for remote devices or use of social media, we are only beginning to see employers feeling at all comfortable with these options as core to their communications,” she comments.
CAP sponsors are increasingly aware that communications must be targeted to take into account factors such as age and proximity to retirement, adds Aarssen. “Further, communication needs to be layered, to deliver messages via print, online, mobile devices and in-person, depending on plan members’ preferences. By helping plan sponsors to better understand their member demographics, we can identify opportunities for effective communications that can increase member engagement and action. This includes our understanding of developing applications that deliver value to members via mobile devices and the internet, and through video and other methods of delivery.”
“Technology is behind everything we do today” – Claude Leblanc, Standard Life
For example, Standard Life created a YouTube channel early in 2011 and uses it to post its educational videos to reach out to as many Canadians as possible. “We know that most people need help demystifying financial products that are complex by nature. That’s why our videos are designed to avoid financial jargon,” says Leblanc. So far, the company has produced a series of three videos on how to read a group retirement plan statement and has just launched a new video focused on socially responsible investment.
Introducing wireless technology into the enrollment process may also prove beneficial. Sun Life recently began giving CAP members the opportunity to complete enrollment applications on a BlackBerry PlayBook tablet during enrollment sessions. Instead of attending a plan information session and taking away a package of paper that ends up not getting filled out, the tablets are loaded with pre-populated forms to make it easier for members to enrol then and there, while the knowledge to make decisions is top of mind. “This is a great way to engage members,” says Reid. “We’ve gone from 50% to 60% enrollment to virtually 100% enrollment when we use the tablets.”
Targeted options
Getting people to enrol and begin contributing as early as possible is key to building a healthy retirement fund down the road, but certain plan design elements can make it easier. Lifecycle or target date funds (TDFs), for example, have been around for years and remain an important option for members who prefer not to take an active role in managing their CAP. These days, providers are further modifying lifecycle and target date funds with a range of options such as guaranteed returns, transition into an annuity fund at retirement and two-layer annuities that provide more money during the more active retirement years.
For members who are unable or unwilling to make investment selections, there is always the default option—which, although not designed as a long-term investment strategy, is better than nothing. In fact, plan sponsors are increasingly making TDFs the default option to help plan members amass some amount of income even when they default.
Even better, from a savings perspective, is the potential of auto-enrollment and auto-escalation. Although some retirement plans are already mandatory with opt-out provisions, “we have reached as far as we can go with auto-enrollment in Canada,” says Johannson. “Until we have safe, secure, simple and accessible means for providing an electronic signature, auto-enrollment will likely continue being offered much as it is today. In today’s world, security has to be the primary concern for employers and service providers, even ahead of efficiency.”
She notes that auto-enrollment twins with the use of default investments for those who are not fully engaged. “However, as a basic premise of CAPs is that members make their own investment decisions, it remains important to continue efforts to engage plan members. It is possible, though, that automatic enrollment is a significant governance advantage in that it ensures that employees are enjoying the financial benefit of the employer’s contribution.”
“Once they notice they have savings, they become more interested in managing them” – Tom Reid, Sun Life Financial
Many would like to see auto features become part of the CAP arsenal. One strong step in this direction is the federal government’s introduction of the Pooled Registered Pension Plans (PRPPs) Act on November 17. Developed in consultation with the provinces, the new pension option is expected to include auto-enrollment to help ensure employee participation.
“Under the recently introduced federal legislation, for those employees in a PRPP, the auto-enrollment feature will promote higher retirement savings participation rates,” says Aarssen. He adds that U.S. statistics demonstrate that auto features positively impact retirement readiness and that “encouraging legislative change in Canada to promote these features would have a tremendous impact on retirement income adequacy.”
Reid points to the experience in New Zealand with the KiwiSaver (similar to the proposed PRPP), which showed that five to seven years after automatic enrollment, people became more active plan members. “Once they notice they have savings, they become more interested in managing them,” he explains. “Auto-enrollment is a powerful tool for increasing savings, and with PRPPs, a full range of auto features will be available across Canada.”
In the end, any way that plan members can better understand the need to save money for the future is a good thing. “This is a vibrant industry that is not lacking in human capital, but we need better co-ordination in actions,” says Leblanc. “The challenge of engagement is not likely to go away soon, but the industry is exploring new ways to communicate and educate—and, hopefully, pension reforms on the horizon will help.”
Sonya Felix is a freelance writer based in St. Catharines, Ont. sfelix@cogeco.ca
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