Hands on May 01, 2010 | Brooke Smith Most consultants and money managers would say that the best default fund for a defined contribution (DC) pension plan is not to have one. However, this is far from reality. “Plan sponsors find that, despite trying to do their best in terms of education and increasing employee awareness, there’s still a large cohort of employees that won’t make a choice,” says Jaqui Parchment, partner and Canadian director of consulting with Mercer’s investment consulting business. Those employees who won’t make an investment choice will inevitably end up in a default fund. Historically, it was enough for plan sponsors to focus on getting plan members enrolled in a DC plan and contributing to it regularly. Now, however, plan sponsors also have to make sure that their members are invested appropriately. Ken Devlin, assistant vice-president, investment solutions, group retirement services, with Sun Life Financial, says there has been an evolution in terms of the way plan sponsors look at default funds. “Sponsors want to make sure that when a member defaults, it is to an investment appropriate for the purpose of the plan, usually a long-term investment.” About one-third of Canadian plan sponsors still opt for a default that focuses on capital preservation. According to Mercer’s 2009 Global DC Survey, of the more than 90% of plan sponsors that had a default fund, 29% had a money market or short-term fund. Historically, a DC default option was one that focused on capital preservation at the expense of greater gains, but that has shifted over the past few years. “Plan sponsors are looking not only at capital preservation [but also at] capital appreciation with moderate risk,” says Robin Stanton, director, investments, group savings and retirement solutions, with Manulife Financial. Consequently, if one-third of sponsors have their unengaged members in a default such as a money market fund, that’s not going to help them gain funds for retirement. “If these employees never make a choice, being in a short-term fund permanently will not give them a great return over a long period of time,” says Parchment. U.S. leads the way Canada is not as fortunate as the U.S. in terms of its retirement legislation. Under the Employee Retirement Income Security Act (ERISA), employers are granted “safe harbour,” which means that if employers offer a range of funds in their DC plans, they are immune from liability relative to their investments. The safe harbour legislation specifies three appropriate default funds for plan sponsors: • a balanced fund; • an asset allocation or target risk fund; and • a lifecycle fund or target date fund (TDF). Latest news Investment management fees for open-end real assets funds can reach as high as 20 per cent, while median fees cost institutional investors either 10 per... - By: Staff
- December 18, 2024 January 1, 2025
- 15:00
Eliminating sick notes for Canadian employees would help remove the administrative burden for both employers and medical professionals, while also improving workplace trust, says Olivia Cicchini,... - By: Sadie Janes
- December 18, 2024 December 16, 2024
- 09:00
Nearly half (46 per cent) of Canadian employers say they plan to add new permanent positions in the first half of 2025, while 49 per... - By: Staff
- December 17, 2024 December 16, 2024
- 15:00
Employers can ensure employees remain safe during holiday celebrations through a combination of communication and robust human resources policies. “I think most companies are at... - By: Blake Wolfe
- December 17, 2024 December 16, 2024
- 09:00
Today's top stories Only 23 per cent of U.S. employees feel educated on company goals, compared to 84 per cent of leaders who say they’re effectively communicating business goals, objectives and key... - By: Staff
- January 13, 2025 January 13, 2025
- 15:00
In 2025, the Canadian Life and Health Insurance Association hopes to see continued support for virtual health care and innovation, says Stephen Frank, the association’s... Institutional investors are facing significant barriers to including Scope 3 emissions as part of their disclosure strategy for environmental assets, according to a new report... - By: Staff
- January 13, 2025 January 9, 2025
- 09:00
Employment Hero, an Australia-based human resources and employee benefits consultant, is acquiring Toronto-based HR consultant Humi. The acquisition, valued at more than $100 million, is... - By: Staff
- January 10, 2025 January 9, 2025
- 15:00
|