While renovation shows on television tend to take a sledgehammer to every surface in a house for dramatic effect, there’s another way.
Defined contribution pension plans don’t need to be completely gutted to stay current. Something akin to painting an accent wall, like tweaking contribution rates, can be just as impactful and way more cost-effective. That’s the restrained approach KPMG in Canada is taking with its DC plan, says Christine McCloskey, the professional services firm’s senior manager of total rewards.
“A redesign traditionally would be starting from the ground up. I don’t think we’re in that position. We’re taking the approach to staying attuned to what’s happening in the market and looking at small adjustments and meaningful changes for our employees — so we will take a look next year at contribution rates, potentially.”
Zaheed Jiwani, a principal at Eckler Ltd., agrees a total overhaul of a DC plan isn’t always required, but it’s good practice to periodically evaluate plan design to ensure it’s still engaging current employees and achieving its goals.
In addition, a total rewards package that includes a recently refreshed DC plan can be a great recruitment tool in the current competitive labour market.
“The pandemic has certainly put some pressures when it comes to hiring new talent and we’re consistently listening not only to our existing employees but to what new candidates are looking for as they come in,” says McCloskey. “We hear a lot of experienced hires looking for increased pension rates — they don’t want to necessarily be driven by the time in an organization; they want it to be competitive, or commensurate, to their level of experience, so we’re hearing a lot of that.”
For KPMG, it’s key to listen to what new hires and current employees want, she adds. The company has a DC plan, but also offers a group registered retirement savings plan and tax-free savings account.
“We do have the DC plan, but people are looking for different options and that’s where the group RRSP and the TSFA come into play. [We’re] really trying to support people’s short- and medium- and long-term savings goals because it’s not one size fits all. People are really looking for something that’s specific to their needs.”
While enrolment in KPMG’s savings programs is optional, the DC plan starts with the employee contributing a minimum of three per cent and the employer contributing two per cent. KPMG matches up to nine per cent of contributions, based on years of service, says McCloskey, but employees have to make a conscious choice to change their contribution as they hit those years of service milestones.
New kids on the block
Employees, particularly younger staff, are also very conscious of environmental, social and governance factors and are increasingly expecting these issues to be addressed in their DC plan’s investment lineup.
KPMG is consistently soliciting feedback from its staff on everything from its investment fund options to plan governance. Last year, for example, it launched a new environmental leaders fund in response to employee feedback that also aligns with the company’s worldwide commitment to address climate change.
The Royal Bank of Canada is also putting more focus on ESG and diversity, equity and inclusion issues related to its DC pension. The bank is in the process of analyzing its plan member demographics, as well as its contribution and participation behaviour through a DEI lens, says Lisa Weir, director of retirement and savings strategy at RBC.
“We have three main strategic objectives for our pension and benefits programs and one of them is supporting an inclusive culture. So we will seek to enhance and create programs that seek to meet the diverse needs of our employees and be sure we align with RBC’s DEI priorities.”
Keeping up with the Joneses
In 2012, the bank redesigned its DC plan and introduced automatic enrolment for all new members following a six-month waiting period. Before the change, employees had a two-year voluntary window during which they could opt into the plan and were defaulted in after 24 months.
Letting new employees pre-enroll in the plan immediately and then autoenroll after six months has been successful, says Weir. “What we know when it comes to pensions is there are key points in your career; there are pivotal points to get an employee’s attention and a big one is on [the] day of hire.”
And getting employees into the plan sooner has meant “we don’t have people who unintentionally wait the two years,” she adds.
In addition to its DC plan, RBC offers a voluntary program through which employees can contribute to an RRSP, a TFSA, a non-tax sheltered savings account and an employee student loan and mortgage program. The voluntary options aim to help employees reach short- or long-term needs, notes Weir.
Since its last DC plan redesign almost a decade ago, the bank has made targeted changes to its financial offerings to meet the needs of its workforce.
“We introduced [the employee student loan and mortgage program] to meet employees where they’re at. So if you’re paying down your student debt or trying to speed up paying off your mortgage, we will treat your eligible debt payments as if they were contributions to our savings program so that you can attract the employer match.”
While the employer match on DC plan contributions depends on years of service, RBC provides a 50 per cent matching contribution on the first six per cent of employee contributions to the voluntary program.
A long-term investment
Meeting employees where they’re at is great, but helping people who might not help themselves is also important, says Jean-Daniel Côté, vice-president for retirement at BFL Canada, noting that data shows auto-enrolling employees in a DC plan is what’s best for them in the long run.
“My best client, they auto-enrol everybody because . . . the No. 1 thing is make your plan mandatory. Make sure people participate.”
Other ways to help employees build a solid retirement nest egg include defaulting them to the maximum contribution, as well as offering a target-date fund, he adds.
Good governance is also paramount, says Lilach Frenkel, partner of retirement solutions at Aon. “It’s important for employers to ensure what they’re offering is best-in-class funds and best-in-class defaults. . . . The other part of it is making sure the fees that employees are paying are competitive and making sure that is very closely monitored on a regular basis.”
And employers would do well to help employees understand that living to a ripe old age with enough money is a shared responsibility. Frenkel says employers should be clearly communicating everything from expected retirement age to the impact of government benefits and taxes to helping employees look at what other sources of income they’ll have to fund their retirement.
While the ongoing coronavirus pandemic has huffed and puffed, it thankfully hasn’t blown as many (metaphorical) financial houses down as was predicted in the first few months of the crisis.
But it did make both plan sponsors and members more keenly aware of the importance of planning for the future. “Over the last several years, there’s been a trend towards paternalism and I can say the pandemic has fostered a bit more of that,” says Jiwani. Specifically, it’s increased the focus not only on helping members with accumulation but with decumulation, he says.
RBC is among the employers focusing in on decumulation. The bank, like many Canadian employers, is readying for a large wave of retirements in the next decade, says Weir, and is in the process of reviewing its decumulation options and hosting employee focus groups to get a sense of what they understand about decumulation and what they want from the plan as they enter retirement.
Selling the renos
Many baby boomers started out working in a world where defined benefit pension plans were common, but that’s shifted over the past few decades in Canada, says Michelle Loder, partner of defined contribution solutions at LifeWorks Inc.
The rise of DC plans means it’s more important than ever that all employees — including boomers, generation X, millennials and generation Z — understand how they’ll fund their retirement. While Loder is keen on the slew of digital tools employees can use to help them grasp the details of their DC plan, she says there’s still room for improvement.
“I’d love to see more sophistication in these tools, particularly around guidance on how to understand what longevity risk is and why it’s so significant for [employees] to understand that and how to set a realistic life expectancy for themselves. Right now, the assumption is made for them within the tool; within the documentation, there’s no opportunity or consideration for them
to use a life expectancy that’s different.”
And while KPMG isn’t planning a major renovation of its DC plan, it did conduct a two-phase redesign of its overall benefits plan starting in 2016. That experience taught McCloskey that, whether a DC plan redesign ends up being akin to putting on a fresh coat of paint or ripping down the house and starting over, marketing the revamp has to catch members’ attention.
“I think it’s hard, especially with a younger employee demographic, to speak to the importance of retirement planning. . . . You might really have targeted communications to very specific groups to appeal to what’s interesting to them. I would say the biggest thing is to keep it simple. People don’t want to get caught in the weeds. . . . You really need to be highlighting both the short- and the long-term benefits of participation.”
Just as a designer wouldn’t start a renovation without first drawing up plans, being a part of RBC’s DC redesign taught Weir that it’s key to be clear on the vision from the beginning.
“Before we zero in on a design, it’s really important to articulate a strategy. We have a vision, we have strategic objectives that we align to our corporate values and then we have guiding principles that help guide our decisions. And I think that having a strategy in place really helps when you go to make those changes.”
Melissa Dunne is the managing editor of Benefits Canada.