Swimming with the sharks

These days, plan members increasingly need to combine DB pensions with DC and other types of retirement savings from multiple employers, factor in personal savings and their spouse’s own pensions, as well as C/QPP and OAS pensions (and don’t forget the stress related to 25+ years of life expectancy!).

In this context—and this may seem odd—but the more participants learn about retirement planning, the more questions they realize they need to answer. So the big question is: how do I get decent, unbiased, personalized advice so that I make the right decisions?

Parting the sea: fees or commissions?
The current modus operandi for the typical member nearing retirement is to meet with his/her regular financial advisor (still a fairly rare situation) or more likely to try to find a decent planner that will help them do the right thing. Note this is true both for CAP and DB plan members, particularly when taking a commuted value is one of the plan options at retirement. This represents a very serious problem, as an astounding majority of advisors are structurally biased because they are providing their services only in exchange for selling financial products.

Unfortunately, retail investors (which are what retiring members become) remain largely reluctant to spend, say, $1,000 or $2,000 on independent advice, and frequently prefer the “free” advice provided by someone paid on a commission basis.

The sponsor life jacket
After having spent tens of thousands of dollars in member contributions over an employee’s career with them, plan sponsors may consider a few options to ensure all this investment does not “go to waste” upon retirement. Here are some potential solutions to avoid this situation:

Retirement planning seminars: Becoming ever more popular, these seminars can provide great value to employees nearing retirement—not only for DC, but also for DB plan members—for a very reasonable price per head. You need to ensure, however, that what you are providing is information—not advice—and that presenters are truly competent in their respective fields. Independence is also key: in order to limit potential liability, avoid sales people dressing as advisors at all costs (one client of mine had their provider contractually engage in not selling any financial products to seminar participants—one good way to test your current provider!).

Retirement advice allowance: A sponsor could offer a lump sum amount to the employees nearing retirement to pay for financial and retirement planning advice. To ensure this amount is used to that effect, the advisor could bill the sponsor directly (up to an allotted amount—say, $1,500), avoiding any payroll taxes that would be applicable if the amount was directed at the employee. Note, however, that this approach leaves little control on the quality of the services the members are getting so it would be a good idea to have employees sign a waiver form recognizing that the sponsor’s role was only to pay for the service.

Retirement advice services: Another avenue would have the sponsor hire a firm to provide individual retirement planning to employees nearing that time of their lives. Still, sponsors would need to manage potential liability risks as best as possible by selecting and monitoring providers through a solid governance process. Also helpful would be offering a choice of providers and having employees sign a waiver form recognizing the advice is not coming from the sponsor.

Sink or swim
Offering such support is not for every sponsor. However, with the large number of boomers closing in on retirement, many will be finding that supporting these employees with the coming decisions will help them retain them and keep them focused on their job.