In helping employees save for their future, the Royal Bank of Canada recognizes the importance of meeting its staff where they are on their financial journeys.
Over the past few years, the bank noticed employees weren’t saving enough into its pension plans. In particular, new hires and younger workers who were invited to join the defined contribution plan were simply opting out.
“We came to the realization that there isn’t that extra amount of money to contribute to the programs because there’s more student debt out there than there used to be, mortgages are a lot higher than 20 years ago and people are just carrying more debt,” says Nadine Orr, vice-president of pension and benefits at RBC. “We wanted to introduce flexibility into our program and recognize it is sometimes difficult to balance that saving for the future and paying off that debt.”
Read: Canadian xennials worried about retirement savings: survey
With an eye to this reality, RBC enhanced its savings program in July, rewarding employees’ good financial behaviour by recognizing their debt repayment with an employer match. Previously, employees had to contribute to the DC plan to receive an employer match. Now, when they make payments to an RBC student loan or an RBC mortgage, the company puts the match into their retirement plan.
‘Til debt do us part
In the 2015-16 fiscal year, the federal government handed out $2.7 billion in loans to full-time students and a further $24.1 million in loans to part-time students, according to the Canada Student Loans Program’s statistical review.
buyers felt concerns or uncertainty around unforeseen costs (57%), paying too much for their home (51%) and living with post-homebuying costs (51%), according to the Canada Mortgage and Housing Corp.’s 2017 mortgage consumer survey.
Household debt in Canada was 100.2% of GDP in the fourth quarter of 2017, compared to 32.2% of GDP in the first quarter of 1969, according to a report by Trading Economics.
The amount depends on what plan employees are in, says Orr. “In general, for most employees, if you contribute six per cent of your earnings, you would get a three per cent employer match.”
When it introduced the program, RBC was very clear the employer match would go towards long-term savings, she adds. “That match doesn’t go to paying down your student loan. You’re doing a good job, you’re paying it down or you’re doing pre-payments to your mortgage. We want you to start saving early so we want that match in a program that will help you save long term, because we know the earlier you save, especially in the DC world, the better off you’ll be at retirement. So we’re balancing those two things.”
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The new program is also aimed at changing savings terminology, moving from ‘retirement’ and ‘pension’ to terms that are more relevant to younger generations. “Your 25-year-old coming into work could care less about that, even though that’s when it’s really important for them to start saving,” says Orr. “Just starting the conversation by using words that resonate with them, like student loan — a certain population perks up.”
Paycheque to paycheque
In 2017, the Great-West Life Assurance Co. began piloting a program that allows employers to reward staff who are paying down government student loans with employer-matched contributions to their group retirement savings plan.
“I think what people like about it is that it really does extend what savings look like for Canadians throughout their lifecycle, rather than retirement is 40 years in the future . . . it’s awfully hard to conceptualize for someone who’s just come out of school, especially with debt,” says Ryan Weiss, assistant vice-president of group customer market development at Great-West Life.
Read: Indigo to pilot Great-West Life’s student debt savings program
Creating a link between paying off debt and saving for retirement helps employers avoid the double negative impact, says Kim Anto, financial well-being leader at Willis Towers Watson. “If you have a lot of student debt, you can’t save for retirement and you can’t benefit from the employer helping you to save for retirement.
“As you go along in your financial life, it’s very hard to move the needle. So by taking your finances to heart and helping solve the situation, it gives you the little help that you need so that, when you’re ready to think more about retirement, you’re not so far behind that you’re unable to keep the pace.”
Indeed, financial worry or pressure is the leading cause of stress for Canadians, and a growing majority are living paycheque to paycheque, according to a Willis Towers Watson’s survey.
Read: Employers have role in mitigating impact of financial stress: report
“Sometimes we don’t realize how many employees are in that difficult financial situation,” says Anto. “And they can’t save for retirement because they can’t address their short-term financial needs.
“Also, the workforce is changing. There are more millennials and gen Z in the workforce, so we need to address that change and think of it differently.”
25% of Canadians said paying down debt is their top financial priority for 2018, compared
to just 7% who cited saving for retirement
as their top focus.
Source: CIBC report, January 2018
24% of generation-X Canadians cited paying down debt as the main reason they haven’t started sav-
ing for retirement.
Source: Franklin Templeton Investments Corp. survey, May 2018
70% of North American employers said credit card and other debt is the top financial challenge facing their employees.
Source: International Foundation of Employee
Benefit Plans’ survey, July 2018
28% of Canadian executives identified assistance with paying back student loans as a benefit that will become more common in the future.
Source: Benefits Canada survey, June 2017
With at least five generations now in the workplace, financial well-being means something different to everyone. Appropriately targeting those differences is rising in importance, says Weiss.
“Student debt was the first step in that direction, but there are many other opportunities to support people who’ve recently purchased a house, recently had a child, children growing up and facing expensive costs of their own, and how do we plug in solutions to help people alter that lifecycle and really make a holistic financial wellness perspective for them?”
RBC’s program is also focused on financial well-being, since the bank introduced the concept as one of its four wellness pillars in 2012. “If you’re stressed because of your finances, you might see physical illnesses appear, there’s relationship or mental-health issues. They’re all connected,” says Orr. “And then you’re not going to be at work, you’re not going to be as present, you might have to take short-term disability. So there’s costs to the employer as well. It’s great for the employees, but it’s good for the employers, too, to be supporting employees towards better financial wellness, because everybody wins.”
Read: Majority of Canadian execs would offer tuition reimbursement to staff: survey
Ultimately, it’s about meeting people where they are on their financial journeys. If an employee is focused on paying down their student debt or paying their mortgage, the employer should recognize that and help them, says Orr. “When you start work, it’s a journey. It’s not just retirement, retirement, retirement. It’s a journey about financial well-being, getting good savings behaviours from the get-go, which will mean positive outcomes at the end of your career.”
As well, Orr stresses the importance of instilling a sense of shared responsibility between the company and employees. “We’re here to support and provide programs and education, but ultimately, it’s a two-way street. So we’re trying to do that with a lot of our well-being programs; just like your health.
“We can support you as an employer, but you have a shared responsibility in getting your overall well-being up,” she says. “That was another one of my goals with this. We’re helping, but you have to pay down your debt. So that’s your shared responsibility.”
Jennifer Paterson is editor of Benefits Canada.