Canadian organizations are spending a significant amount of time on their retirement programs this year, particularly in the areas of risk management and plan members’ understanding of retirement income adequacy.
Hewitt Associates’ Canadian Retirement Trends 2009 survey of 196 organizations suggests that a majority (59%) of plan sponsors of both defined benefit (DB) and defined contribution (DC) plans are “somewhat” or “very likely” to assess the appropriateness of their retirement programs’ design this year. “While that doesn’t necessarily mean that they’re going to change the design,” says Andrew Hamilton, a senior retirement consultant with Hewitt in Toronto, “we are seeing renewed interest from some DB plan sponsors in considering a transition to a DC plan.”
Two-thirds of capital accumulation plan (CAP) sponsors are likely to conduct a comprehensive review of their investment fund offerings, states the report. Half of respondents with a DB plan are very likely to perform funding and accounting projections, and 41% are very likely to assess risks (financial and non-financial) based on current strategies.
“The goal is to ensure that employer-sponsored retirement programs are striking the right balance between risk and return for employees,” says Hamilton.
Employee engagement
Communication efforts are being ramped up so that employees understand the need to save for retirement and how the company plan can help. More than 40% of respondents expressed confidence that their programs enable employees to retire with sufficient retirement assets, as long as the lessons are taken to heart.
“Saving for retirement doesn’t become a concern for many employees until they hit age 45 or 50,” says Dianne Tamburro, a senior investment consultant in Hewitt’s Toronto office. “By then, it may be too late to build up an adequate nest egg to retire comfortably, even with other sources of savings.” A high priority for 42% of employers is ensuring that employees understand that they need to be responsible for their own future.
For CAP members, the ideal is to have them join the plan early, increase contributions over time and invest more conservatively as they get closer to retirement. “In addition, some CAPs are designed so that employers match employees’ contributions, up to a certain limit. Members who don’t take advantage of this provision leave free money on the table,” says Tamburro. “These are the basic, but important, messages that organizations want to ensure employees understand and act on.”
Investment guidance
Employers approach the tricky issue of assisting employees in making the right investment decisions in several ways. The most prevalent forms of education currently used are online investment guidance (54%), phone access to investment advisory services (49%) and in-person financial education seminars (47%).
“It’s not surprising that these resources have the highest utilization, as some of these services are available through the plan’s recordkeeper and included in their fees,” says Tamburro. “Fewer employers offer online (36%) or in-person advisory services (24%), primarily due to the additional fees or potential liability associated with these services.”
Forty-five percent of respondents provide target risk/lifestyle funds, while 28% offer target date/lifecycle funds, the former being noteworthy due to the short time they’ve been available in the Canadian marketplace, explains Tamburro. She says their prevalence is largely due to the popularity of the product in the U.S.
The survey also suggests that the number of employers offering retiree medical and dental coverage is declining. “Sixty percent of employers currently offer post-retirement healthcare benefits,” says Hamilton. “However, one-third expect to reduce coverage for future retirees, and 43% may look to retirees to share more of the cost of these benefits. This means that employees have even more reason to save as they may have to foot some or all of the bill for healthcare expenses not covered under provincial plans.”
To comment on this story, contact us.