Are DC plan members capable of making the right decisions, or should the decisions be made for them?

There are two camps emerging in Canada’s defined contribution(DC)pension plan community. Which camp you sit in depends on how much faith you have in plan members’ ability to act in their own best interests.

The first camp is inclined to give plan members a fair bit of credit. It believes that, with the appropriate information, a bit of education and the right incentives, DC plan members will not only take an interest in their plan, they’ll make the right decisions and take the necessary steps to ensure a healthy account balance at retirement.

In the other camp are those who have a somewhat more pessimistic view of members. They believe that, despite plan sponsors’ best communication and education efforts—lunch and learns, Web tools and glossy information packages—most plan members won’t pay any attention to their plan until it comes time to retire. In the meantime, they will remain blissfully ignorant about how little their DC plan assets are earning in the default option. The only way to make sure plan members make the right decisions for their DC plan, according to this camp, is to make the decisions for them.

It’s this latter view that is the focus of our 2007 Top 50 DC Plans Report. As plan sponsors see their plan member communication efforts fall flat, more are turning to autopilot features: enrolling plan members automatically, increasing their contributions automatically and introducing target-date or lifecycle funds, which automatically adjust members’ asset allocation as they approach retirement. Plan members typically have the ability to opt out of these features but, human nature being what it is, not many do.

The autopilot approach is already popular in the U.S. where the Pension Protection Act provides a “safe harbour” for qualified automatic contribution arrangements. While there is no “safe harbour” on our side of the border, the autopilot approach holds increasing appeal for plan sponsors whose education efforts have met with limited success.

But not everyone has written off plan member education and communication. In this issue, we feature profiles of the winners of our first annual Benefits Canada Awards. The winner in this year’s Plan Member Communication category is the Mississauga, Ont.-based pharmaceutical company, AstraZeneca. It successfully used a targeted communication approach to get through to plan members who were parked in the plan’s default option. Whether the answer is more autopilot features, targeted communications or a combination of both, there may be hope for plan members yet.

Don Bisch is the editor of BENEFITS CANADA.

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© Copyright 2007 Rogers Publishing Ltd. This article first appeared in the September 2007 edition of BENEFITS CANADA magazine.