©  Copyright 2002 Rogers Media. The following article first appeared in the March 2002 edition of BENEFITS CANADA magazine.

In the late 1990s providers embraced technology as a vehicle for empowering customers. Sponsors and members now have access to plan information around the clock. Plan rules permitting, employees can make trades whenever they choose.

When the technology bubble exploded in 2000, many inexperienced investors were confronted with volatile markets and negative returns for the first time. As a result, market timing became a hot topic in DC circles.

While market timing is a potentially risky strategy, research reveals it is not a concern for DC plans. Fidelity Retirement Services Co. studied participant trading activity on the days of greatest market volatility in 1999 and 2000. The majority (78%) of all participants did not make any trades during 1999, while 15% made only one trade. In 2000, 74% of participants did not make a trade that year. When the number of trades carried out by an employer or fund manager are taken into acount, the percentage of participants that did not make any trades increases from 74% to 82%.

The research also identifies the 20 most volatile days on the major North American exchanges in 1999 and 2000, and tracks trade activity on those days. Interestingly, on eight days, trading among DC plan members was actually lower than average.

In the U.S., Fidelity tracked the number of members contacting provider services such as call centres on the most volatile days. Even then, the volume of contacts did not rise overall. On 10 days, contacts were indeed higher than average, but on the other 10, the volume was actually lower.

This begs the question: are participants truly unmoved by market volatility? Most plan sponsors and providers would probably conclude that employees either understand the concept of investing for the long term and are staying the course or that they are apathetic or, worse, lack the proper knowledge needed to make changes to their portfolio.

Employers and providers may like to think participants have grasped the concept of staying the course. But many members are simply ill-informed. Fidelity's U.S. data shows that regardless of the number of options offered in a plan, an astonishing number of participants only invest in one to two options. For example, in plans with 31 options, 42% of members invest in only one to two options.

A lack of diversification, not abandoning a long-term plan, may be the biggest risk employees face in volatile markets. In fact, many participants are investing in just one option--the plan's default fund. One or two options may be an acceptable level of diversification if they consist of a fund of funds or a lifecycle fund. But these options are still not available in the majority of DC plans.

What are the lessons for sponsors here? First, market timing isn't a great concern. However, employers should investigate their default funds and work with their provider to communicate with plan participants who are in that fund simply because they have not made a decision about what to do with their retirement savings.

Sponsors would also benefit from examining plan diversification on a quarterly basis and setting annual goals for improving diversification. They can also consider offering more education seminars and working with an independent provider that offers counselling and advice to employees. BC

The Romanow Commission has released its final report on the future of healthcare in Canada.

For Commissioner Romanow's recommendations, click here.

Click here for Senator Michael Kirby's report, "The Health of Canadians – The Federal Role: Recommendations for Reform."