More plan sponsors are considering eliminating the waiting period for employees to join their pension plan, at least for employee contributions, according to a new report on capital accumulation plans by Sun Life Financial.
“It’s much easier for a new employee to adjust their spending to their first take-home pay than to give up money to join their workplace plan after three months, for example,” noted the report.
For employees to receive the full employer matching contribution, the most common employee contribution rate is five per cent of earnings. The majority of employers with a matching contribution program provide at least a 75 per cent match.
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In smaller workplace pension plans with less than 200 plan members, 95 per cent provide some matching contribution. Among these employers, 78 per cent provide employees with a dollar-for-dollar match.
The survey also found 28 per cent of total CAP assets held by Sun Life are in target-date funds, compared to just seven per cent in 2010. It also found more than 80 per cent of all contributions are to target-date funds.
A growing number of plan sponsors have also set a starter savings rate. “When we simplify enrolment for Canadians, our research shows that we can increase participation rates by a full 24 percentage points, and that employees are 30 percentage points more likely to maximize their savings to receive the full employer match,” noted the report. “Plan sponsors who have set a starter savings rate are seeing impressive results — a small step that is clearly driving better outcomes.”
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The report also found 50 per cent of global pension assets are in defined contribution plans. In Canada, DC plan assets accounted for roughly five per cent of all pension assets, compared to 87 per cent in Australia and 60 per cent in the U.S.
During the last 20 years, the report noted, global DC assets have grown at an annual rate of 7.6 per cent while defined benefit plan assets have grown 3.2 per cent annually. “[DC pension plans] have worked better for employers who have had declining appetite for taking pension risk,” it said. “DC is becoming the dominant global model and services continue to evolve to meet the rapidly changing needs of employees saving at work.”
Read: Top 50 DC Plans Report: How plan sponsors can blend DB features into their DC pension plans