Participation rates for eligible employees in employer-sponsored savings plans are healthy, but there is room for improvement.
The 2013 Capital Accumulation Plan (CAP) Benchmark Report finds that participation rates for eligible employees in voluntary DC plans to be 81% and 61% for voluntary group RRSPs. The report was commissioned by Great-West Life and managed by Benefits Canada’s parent company, Rogers Publishing.
Jeff Aarssen, senior vice-president of group retirement services with Great-West Life, notes that 20% to 40% of eligible employees aren’t participating in voluntary plans and suggests that employers consider implementing mandatory enrollment as one strategy to increase employee participation.
“We know some sponsors shy away from mandatory enrollment because of the perceived increase in employer contributions associated with greater enrollment numbers,” he says. “Where cost is a concern, sponsors can adjust the matching formula to a lower amount, to offset higher participation rates.”
Without mandatory enrollment, many employees may be at risk because they haven’t taken the first step to become members of the plan, adds Ken Millard, vice-president of national accounts with Great-West Life.
“This reluctance could be related to loss aversion, which refers to peoples’ tendency to place greater value on avoiding losses than on making gains. To overcome this natural tendency, he encourages sponsors to reframe company matching contributions as being akin to an enhanced compound growth rate,” he explains. “If a sponsor matches 25 cents for every dollar a member contributes, that could be seen as an automatic 25% rate of return. That’s a strong message to share with members who are loss-averse.”
Related articles: