This is Part 1 in our series on pension and benefits plan management for mid-size and smaller plan sponsors. Check back to BenefitsCanada.com for more coverage coming soon.
A common goal among mid-size plan sponsors is finding a happy medium between achieving the flexibility their employees seek in benefits and pensions, and keeping costs down and plan administration simple. With challenges such as the time and expertise required for in-house administration—and lack of scale to maximize provider efficiencies—achieving balance, customization and diversification can prove difficult and costly.
But these organizations are up to the challenge. Many are considering or implementing solutions tailored to the company’s size, in terms of plan design, investment management and plan member engagement.
Flexible and engaging pension plans
For many mid-size plan sponsors, finding ways to keep employees engaged in retirement saving during the years when retirement is not top of mind is one of the primary considerations in plan design. The key, say consultants, is flexibility.
“It does continue to be a challenge. The industry and plan sponsors continue to try to engage members through the use of plan design and communication strategies that are tailored to their workforce,” says Shawn Cohen, vice-president, investment consulting practice, with Aon Hewitt.
“I think one of the things that you want to consider to engage employees, especially within DC plans, is to create a ‘culture of savings.’ So even if retirement is not top of mind, as in the case of younger employees, they are still motivated to contribute to a savings program that allows flexibility to save for retirement as well as other purposes,” he adds.
Cohen says some mid-size companies are drawing employee attention by linking their retirement program to their benefits program. Essentially, employers are allowing employees flexibility between retirement savings and group benefits, with employees choosing to allocate some dollars to benefits that would otherwise go to retirement, and vice versa.
For Belleville, Ont.-based Bioniche Life Sciences, flexibility means creating an opportunity for its 225 employees to save for retirement through a group RRSP or non-RRSP plan, 0% to 6% of salary per year, with a company-matching component. This structure makes the plan accessible both to employees looking to save the most they can for retirement and to those who need to balance saving with other financial goals, such as buying their first home or returning to school.
Bioniche is also currently looking at offering a component of its plan through a tax-free savings account in concert with its stock option program, after receiving inquiries from the company’s younger demographic, says Bruce McLeod, Bioniche’s vice-president of HR.
But convincing employees to make contributions to a company’s retirement savings plan is one thing. Another challenge—for plan sponsors of all sizes—is to ensure that members are paying attention to the plan and making appropriate investment decisions. This task can prove doubly difficult for mid-size organizations, which often have limited resources and in-house expertise.
Larry Corrigan, vice-president, finance, and chair of the pension committee at Saint Mary’s University (SMU) in Halifax, says the institution’s DC plan gives its members a great deal of flexibility in making investment decisions.
“Members have access to pre-built options, and most choose a balanced portfolio,” says Corrigan. “Members can also decide to build their own portfolio from a variety of investment products. In a volatile investment environment, the DC pension sponsor has to provide enough information to be a steadying influence so members do not make panic decisions to their own detriment.”
Corrigan admits that while some members understand their pension plan and manage their investments very well, others are bewildered. “This is a major risk for the university, since plan members direct the investments of both employee and employer contributions,” he adds.
The university addresses this challenge by sending written material directly to each member and hosting meetings with investment experts to provide information.
The university also holds orientation sessions for new plan members, regular group training and individual pension planning sessions run by SMU’s pension consultant. An individual session is offered to those nearing retirement who have attended a weekend pension planning session; both the individual and group sessions are sponsored by Saint Mary’s.
Hundreds of employees participate in various education sessions throughout the year, says Corrigan, and nearly all who attend the weekend pre-retirement session avail themselves of the pension consulting.
Corrigan notes that SMU is also currently looking at target date funds to help members manage risk as they progress through their career, as he says there is evidence that many plan members seem to select a single investment style for life.
Helen Burnett-Nichols is a freelance writer in Hamilton, Ont. helen@burnettnichols.com
Get a PDF of our series on mid-size plan management.