A retirement plan can be an effective tool in helping employers attract and retain talent while managing an orderly transition in the workforce. Done properly, it provides obvious benefits to employees, but there are benefits for employers as well.
According to data from Willis Towers Watson, the average employer-provided value in a defined contribution plan in Canada is 6.3 per cent, assuming employees take advantage of the full company match available. It’s a significant number for most organizations, so how can an employer measure if the retirement plan is providing the right return on the company’s investment?
Across Canada, retirement ages have been steadily increasing since 2000, particularly for members in defined contribution plans. In fact, in a recent Willis Towers Watson survey, 16 per cent of respondents said they expect to retire after age 70, up from five per cent in 2011. Although this might be good news for some organizations, it could pose a challenge for others. In either case, it makes the retirement plan an increasingly important tool to help ensure employees are able to retire when they are ready and when the organization needs them to.
A good place for employers to start is by articulating why they have a retirement plan in the first place. What’s the main purpose of the retirement plan? If it’s to attract employees, then the plan must be competitive in the marketplace. If it’s to retain employees, then the plan must be well understood and used by employees. If it’s to allow employees to leave the organization when they’re ready and when the employer needs them to, then employees must be participating in the plan and saving enough for retirement.
Once the objectives are set, employers can put a plan in place to make sure they can meet them. For example, another recent survey by Willis Towers Watson showed only 69 per cent of respondents take advantage of the full company match in their pension plan. If the purpose of the retirement plan is to retain key talent or to ensure an orderly transition into retirement, then having 31 per cent of employees not fully participating is a problem that should be addressed before it’s too late.
We’re all familiar with the old saying “what gets measured, gets done.” Well, this works for retirement plans too. An effective way to measure is to develop a scorecard, which provides a holistic review of key elements of the plan and highlights areas that are working well and areas of risk or opportunities to make the plan more effective.
When it comes to retirement savings plans, employers are very good at monitoring how the investments are performing. But employers spend far less time monitoring other measures that could be more important in helping them achieve their objectives, including employee participation rates, at what age employees are able to retire and how many employees are using the retirement planning tools. These metrics should be given an equal amount of focus on the scorecard.
The formula for ensuring a retirement plan is getting an effective return on investment is not the same for each employer. Different levers must be pulled to achieve the right results for each organization. However, by consistently analyzing the plan’s data and measuring outcomes of any actions taken, an employer can maintain a successful retirement plan for both the company and the members.