With the coronavirus pandemic and rising inflation causing economic uncertainty, capital accumulation plan sponsors are looking for new ways to help their members feel secure and get the most out of their savings plans.
Benefits Canada asked CAP sponsors and other industry experts what’s on their wish lists to make these plans more effective and engaging for members.
Simplicity is key, especially for new plan members, says Kate Interisano, manager of compensation and benefits at Niagara Casinos.
“As a starting point, keeping the information simple and straightforward for new members is critical. We want to ensure we capture employees’ interest and don’t deter them from engaging in the plan from the onset.”
Automatic enrolment is a simple way to set plan members up for success from the start, she says, and following that up with easy-to-use tools and resources for further education and engagement will set them on the right path in their lifecycle as a plan member.
Indeed, Niagara Casinos auto-enrols all employees into a defined contribution pension plan with a four per cent base contribution, three per cent employee contribution and a three per cent employer match. It also introduced a group tax-free savings account five years ago to help employees with emergency savings.
Eric Monteiro, senior vice-president of group retirement services at Sun Life Financial Inc., agrees auto-enrolment is one of the top ways to increase engagement. Plan members have enough to worry about with retirement, he adds, noting auto-enrolment makes the initial process much easier.
At Sun Life, 95 per cent of employees are auto-enrolled into its DC plan and this feature has also increased participation, according to Monteiro, who adds the record keeper is experiencing demand from CAP sponsors as well. “We’ve seen a huge growth in interest on automatic features over the last year or two. We did a [survey in August 2020] where small businesses in Ontario were asked whether they’d be interested and, surprisingly, 100 per cent of sponsors said they’d be interested in [auto-enrolment] if it would result in better outcomes.”
Communication and education
Sun Life has also been simplifying language and increasing awareness around digital tools and resources to make sure CAPs are as easy to understand as possible, says Monteiro.
“We’ve seen that members who are actually digitally engaged have account balances almost twice as high as those who aren’t and the contributions are double for those who are digitally engaged.”
Communication is a top priority for Desjardins Insurance’s plan sponsor clients, says Maria-José Perea, the organization’s vice-president of product innovation. “We work with sponsors on communications to help plan members understand the different options available to them, but it’s still a challenge. Even though we put these solutions in place and we do a lot of promotion with the help of our plan sponsors, the take up is still quite low.”
As a result, Desjardins has invested in automated communications. It uses a tool to analyze different data triggers depending on a plan member’s personal situation, retirement objectives and investor profile, explains Perea. Depending on their usage of the tools, participation and knowledge of the plan, they’ll receive different communications with a specific call to action.
According to Cindy Marques, director and financial planning and education specialist at Open Access Ltd., one-on-one support has been a popular request from plan sponsors. “A lot of it comes down to showing face and providing that one-on-one support, so we make a concerted effort to do site visits as often as possible.”
The group RRSP provider hosts monthly webinars and workshops for all of its plan sponsor clients to share with their plan members. It also offers literacy workshops at different times so plan members can fit them in around their work schedule and family life. “This is where that one-on-one support comes into play. . . . If we’re visiting a plan sponsor, we’ll carve out the day to allow plan members to sit with us and ask any questions they might have.”
Indeed, CAP sponsors are looking for more independent financial education and tools, says Zaheed Jiwani, principal and leader of the DC consulting group at Eckler Ltd. “It’s not just about educating on the plan, but also looking more holistically at financial education — everything [members] need to know about their own finances and their retirement program being part of that.”
While services around financial planning used to be more focused on retirement, says Perea, they’re now being deployed across the entire plan member journey. But while financial planning may not be as complex at a mid-career stage, she adds, the focus is more around optimizing savings by coupling digital tools with financial services.
Different savings options
While CAP sponsors are asking for support in covering wider financial topics, they also want to know how to leverage other types of savings plans, such as tax-free savings accounts, says Perea.
“To deal with that request, we’re providing more financial education in general, not just around retirement. A lot of communication around staying the course, what to do if there’s volatility in the market or inflation and how to manage short-term goals with long-term objectives.”
Monteiro agrees it’s important to have the right tools and products available for members. For younger employees in particular, retirement may not be on their minds, so a TFSA is a great example of a product that’s designed for long-term savings but can be used as a short-term savings vehicle.
The industry is also seeing increased plan sponsor interest in target-date funds.
“Plan sponsors are looking at their investments in a lot more detail than they ever have before on the CAP side,” says Jiwani. “Even when those investments are pre-packaged portfolios like target-date funds, we’re finding a lot more plan sponsors [are] doing deep dives on that. One of the areas they’re asking more questions about is how [their investments] are sensitive to rising inflation and rising interest rates.”
On the investment side, he’s seen more CAP sponsors asking about bonds after seeing the impacts of inflation. “Some alternative classes haven’t been hit like equities and bonds. That financial education piece ties in with just making sure members are more aware — or at least they have access to — resources, independent education and tools.”
For Monteiro, sustainable investing has become a top priority for both plan sponsors and members. With so many visible reminders, a lot of plan members have environmental, social and governance investing at the forefront of their minds. In terms of talent attraction, he says, plan sponsors want to be able to say their plans are focused on sustainable investing, particularly when it comes to younger talent.
A 2021 Sun Life survey found more than three-quarters of plan members said they’re interested in more sustainable investing, but only 30 per cent understood how their plan can impact sustainability, so there’s a significant knowledge gap, notes Monteiro.
George Weston Ltd., which offers employees a DC plan and a group RRSP, is working on improving its CAP members’ retirement outcomes through lower investment fees, a better default fund and by controlling the number of investment options available.
Equally important, says Roman Kosarenko, the organization’s senior director of pension investments, is the development of better decumulation solutions.
Indeed, at the top of Kosarenko’s wish list is some form of longevity pooling to provide plan members with true lifetime income.
“Unfortunately, our record keepers don’t have a clear vision on the path forward. There are many good reasons to do nothing, but I would argue that the dominant players also have a societal res-
ponsibility to address this massive deficiency in the existing CAP regime.”
Jiwani also highlights the increased focus on decumulation, calling it a major shift in the CAP space. “We used to have a conversation with a [plan sponsor] client every couple of months on decumulation; now, it’s daily. There’s been an increased interest due to the recent legislative changes and research papers on dynamic pension pools, [also known as] variable payment life annuities.”
Sun Life has also seen an increase in questions from plan sponsors around decumulation. “It’s more important than ever now,” says Monteiro. “People are living longer and they’re worried about [retirement income]. Fewer Canadians have defined benefit pensions and the whole situation is complicated. We haven’t done a great job as an industry making it simple for them.”
It’s important for younger plan members to realize it’s never too early to start thinking about decumulation and retirement, notes Interisano. “While retirement isn’t their immediate focus, especially in a time of high inflation and market volatility, having them start to think about their retirement and savings early will only benefit them. As we continue to reinforce, small amounts over time equals big savings.”
Part of the total package
Another item on Interisano’s wish list is additional tools to assist with future thinking.
For younger employees who join the plan, she wants more tactics and resources to demonstrate the value of the plan in terms of the organization’s total rewards package. “The fight for talent is at a peak and the younger demographic doesn’t always understand the value of the pension plan as it’s not immediately tangible for them. Having tools and resources for them to be able to see the potential growth and long-term value helps to engage them in the plan.”
Ultimately, the goal for plan sponsors is to cross more items off their wish lists in the coming years, so they can provide the proper education and resources for each plan member to achieve a sustainable retirement income.
“We’re seeing a shift and a refocus,” says Jiwani. “Plan sponsors are recognizing that each of their members have their own unique circumstances despite being part of a group plan. The focus should be on giving members more options for education and a better understanding to prepare them. In an ideal world, you’d have all that. Plan sponsors aren’t there yet, but that’s what the wish list is for.”
Sadie Janes is an associate editor at Benefits Canada.