Many Canadian employers are devoting significant time to their retirement programs this year according to a recent survey conducted by Hewitt Associates, a global human resources consulting and outsourcing company. According to the 196 organizations that responded to the Canadian Retirement Trends 2009 survey, efforts regarding plan management centre on reducing exposure to risk, and employee communication and education around retirement income adequacy are high on the corporate agenda.
Plan design under review
"Regardless of whether they sponsor defined benefit (DB) pension plans or capital accumulation plans (CAPs), such as a defined contribution (DC) pension plan, over half (59 per cent) of employers are somewhat or very likely to assess the appropriateness of their retirement program's design this year," says Andrew Hamilton, a senior retirement consultant with Hewitt in Toronto. "While that doesn't necessarily mean that they're going to change the design, we are seeing renewed interest from some DB plan sponsors in considering a transition to a DC plan."
Two-thirds of CAP sponsors are likely to conduct a comprehensive review of their investment fund offerings. Half of respondents with a DB pension plan are very likely to perform funding and accounting projections and 41 per cent 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," stated Hamilton.
Communicating about employee responsibility
Organizations are also stepping up communication efforts so that employees understand the need to save for retirement and how the company plan can help. Over 40 per cent of employers are confident that their programs enable employees to retire with sufficient retirement assets-at least in theory.
"Saving for retirement doesn't become a concern for many employees until they hit age 45 or 50," said 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 per cent of employers is ensuring that employees understand that they need to be responsible for their own future.
Ideally, CAP members 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," states Tamburro. "These are the basic, but important, messages that organizations want to ensure employees understand and act on."
Helping employees make appropriate investment decisions is particularly challenging and employers with a CAP use multiple methods to educate and assist their members. The most prevalent forms of education currently utilized are:
- online investment guidance (54 per cent),
- phone access to investment advisory services (49 per cent) and
- in-person financial education seminars (47 per cent).
"It's not surprising that these resources have the highest utilization, as some of these services are available through the plan's record keeper and included in their fees," says Tamburro. "Fewer employers offer online (36 per cent) or in-person advisory services (24 per cent), primarily due to the additional fees or potential liability associated with these services."
Forty-five per cent of employers surveyed provide target risk/lifestyle funds (funds with a static asset mix of equities and fixed income that range from conservative to aggressive) and 28 per cent offer target date/lifecycle funds (funds with a dynamic asset mix of equities and fixed income that shift to more conservative investments as the maturity/retirement date approaches). Target risk and target date funds are simple tools to help employees adequately diversify their investments.
"Considering that target date funds were only launched in Canada less than five years ago, the relatively high percentage of plans offering these funds is noteworthy," says Tamburro. "Their prevalence is largely due to the popularity of the product in the U.S."
The survey also indicated that the number of employers offering retiree medical and dental coverage is declining. "Sixty per cent of employers currently offer post-retirement health care benefits," says Hamilton. "However, a third expect to reduce coverage for future retirees and 43 per cent 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 health care expenses not covered under provincial plans."
Copies of Hewitt Associates' Canadian Retirement Trends 2009 survey report are available from Hewitt by calling (416) 225-5001, or by
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