How to ease pension plan member anxiety when they can’t access funds

Anxiety is running high for many Canadians who are feeling the immediate financial impact of the coronavirus pandemic due to job losses, reduced work hours and significant declines in investment portfolios.

But some may also feel unease if they can’t access money from specific funds within their defined contribution pension plan. “Right now, we’re aware of just one real estate fund that’s closed to redemptions on a DC platform and we would expect that there might be other real estate funds that choose to limit monies in and out in the next coming weeks because it is challenging to get proper valuations on the buildings,” says Janice Holman, principal at Eckler Ltd.

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When communicating with plan members, the responsibility is shared. “Some plan sponsors seem to feel a strong responsibility to keep their members informed and own the stream of communications, whereas others might prefer to delegate more to their providers or the advisors and some others are actually just doing a mix of both,” says Alyssa Hodder, senior communications consultant at Eckler. “In some cases, we’re finding providers may actually have the more up-to-date information, but hearing from the plan sponsor directly does sometimes have a calming influence on people if they’re feeling jittery about their investments.”

Plan sponsors with the aforementioned real estate fund on their DC investment menus are proactively reaching out to members, laying a foundation before the record-keeper communications, says Holman. “I think they wanted to make sure that the members weren’t just hearing from the record keeper and getting anxious about what was happening. They wanted to provide some reassurance and at least let plan members know that they were aware of the situation and that they’d be watching it and seeing how it plays out over the next couple of months.”

In conversations with DC plan members, it can be helpful to provide basic context on what’s happening in the market and why they can’t access their funds right now, adds Hodder, noting it’s important to use plain language because investment jargon may add to plan members’ anxiety or feelings of unease.

Read: How to talk about pensions and benefits during coronavirus

Plan sponsors can also explain to members why closing the fund to redemptions is in their best interest, says Holman, noting it helps ensure fairness and that the funds are being valued properly. “It’s not like there’s been a run on the money and the price of real estate has crashed or that there’s no liquidity in the fund. I think just explaining what it is in clear terms and that . . . they’re trying to do that to ensure it’s there for the investors is an important message.”

Overall, Hodder says she hasn’t heard specific concern from plan members that they can’t access a fund. “The concern is more just generally about what’s happening in the markets and what that’s doing to their portfolios. Possibly, unless you need the money right away, you’re not in that space to be worrying about that one particular fund as much.”

In the case of the fund that’s currently closed, the provider has said it will review requests if a plan sponsor is terminating employees who are looking to access that money, notes Holman. “It’s just for their regular ongoing contributions in and regular transfers out to other investment options that they are trying to stop right now.”

That said, since the fund is closed to both redemptions and contributions, it’s important employees are told where their contributions are being redirected, she says, noting even when the fund reopens, a person would have to elect to direct their contributions back into it. “The record keeper and the plan sponsor should be clearly communicating where their contributions are being redirected, the risk/return profile of the new fund and should encourage plan member to review if this option is suited for them.”

Read: How can plan sponsors help pension members during volatile times?

Generally, pension plans that do offer real estate options on their investment lineup are very upfront about the risks of these funds in launch communications, notes Holman.

However, some plan sponsors may be hesitant to offer these funds in the first place. “I think some are shy to provide real estate funds because of some experiences we’ve had in the past, where daily liquidity hasn’t been possible or the funds haven’t been invested the way that people expect just because of the different characteristics of the asset class.”

For example, in 2008, a different real estate fund suspended redemptions and contributions for a long period, she adds. Since then, another real estate fund has closed because the amount of cash inflows were too large to be invested right away and the fund couldn’t be invested in the way people expected it to be.

“We’ve seen challenges with real estate funds on DC platforms . . . ,” says Holman. “So you do have to be careful and understand what the risks are before you make those investment options available to your members.”

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Where plan sponsors are looking at offering real estate funds, they may choose not to include these in shorter-term savings vehicles such as tax-free savings accounts and non-registered pension plans because, in these conditions, liquidity can be a challenge, she adds.

But even within DC plans or funds that are locked in, plan member anxiety would still remain, although it may be less of a concern since the money is restricted while they’re employed. “You never want to be told that you can’t access your money even if it is just to move it to a different investment option, and I think that’s where the communication needs to be really helpful and clear and calming.”