This is Part 1 of our 6th annual survey of CAP members.

Read Part 2: Increasing understanding

Read Part 3: Managing expectations

Read Part 4: Exploring new communications

Getting employees into the plan and saving early is an ongoing challenge for CAP sponsors. What are the barriers, and how can employers overcome them?

Faced with ongoing economic uncertainty, high personal debt loads and stagnating wages, many employees are preoccupied with financing general living expenses and paying off mortgages and credit cards. The concern, however, is that all of these day-to-day financial obligations may dissuade them from saving enough for retirement. Perhaps it’s time for plan sponsors to be frank with members of capital accumulation plans (CAPs) about the long-term consequences of inadequate contributions.

That’s one of the conclusions drawn from the 6th annual CAP Member Survey, which asked non-members and members of employer-sponsored retirement plans why they don’t save more. Both groups had similar reasons: “currently just getting by financially” (43% of non-members and 33% of members), general living expenses (40% of non-members and 55% of members), credit card debt (28% of non-members and 19% of members), mortgage payments (18% of non-members and 24% of members) and “not a priority at this time” (19% of non-members and 14% of members).

Personal priorities appear to be influenced by stage of life. For example, plan members who are single are more likely to say “just getting by” (35%), “credit card debt” (26%) or just “not a priority” (22%), while those who are married are more likely to cite “mortgage payments” (29%). “The theme from the majority of respondents who choose not to contribute is that they don’t because they can’t afford it,” says John McAteer, manager, pension, savings and benefit plans, with Direct Energy. “To me, this screams a need for Budget 101, where long-term savings are defined within your financial constraints and not in addition to your financial constraints. There is still a lack of understanding that retirement savings should have a place in your monthly expenses.”

Anna Del Balso, associate vice-president, research and intelligence, with Standard Life, views employees’ increased awareness of their financial health and their willingness to take financial responsibility by paying down debt as a positive step. “But that’s just one of the steps,” she says. “Now we need to make them think about the bigger, longer-term picture. The first step is to get them to join their retirement savings plan. Auto-enrollment could help since, over time, employees will start seeing a pool of assets accumulating; it will mean something to them. They’ll have more commitment when they have money in the game.”

Based on this year’s survey, plan sponsors have their work cut out for them to convince plan members to put more money into workplace retirement plans. The majority (83%) of plan participants agreed that the shakeup in the financial markets during the last couple of years has made them more aware of the need to save and invest for the future. But this awareness hasn’t translated into higher contributions to employee retirement savings plans. In fact, both employee and employer contribution levels reported have fallen steadily over the past five years.

In 2011, the mean percentage of earnings that employees report contributing to their plan was 4.9%, down from 7.3% in 2007. On the employer’s side, reported contribution rates have dropped from 6.2% in 2007 to 4.4% this year. Still, six in 10 (61%) plan participants agreed that their employer’s DC plan and/or group RRSP is their primary vehicle to save for retirement—up from 56% in 2010.

While employees may be reluctant to invest more in employer-sponsored retirement savings plans, the majority (58%) of plan participants have personal RRSPs. Nearly one in five has a formal savings program as part of a bank account or an informal savings program (17% for each). One in 10 (11%) makes non-scheduled lump sum deposits to a savings account. However, there remains a significant minority (23%) who report having no other savings programs beyond their employee retirement plan.

The fact that so many people have RRSPs and other savings is an indication that members don’t understand the benefits of their employer-sponsored plan, says Jennifer Gregory, vice-president, national accounts, with Great-West Life. “Group retirement savings plans have generally lower investment management fees compared with retail investment options. The whole idea of the group advantage is getting lost somewhere in the communication.”

What would make employees save more in their DC pension plan or group RRSP? An increase in salary was the top response (17% of survey respondents). Other incentives include increased employer contributions (14%), matching employee contributions (12%) and more benefits and bonuses (7%). One in 20 (5%) said they are already satisfied with the existing program.

Unengaged plan members—those who had not taken any action over the past year such as reviewing plan statements, consulting a personal financial advisor or using retirement planning tools provided by their employer—were also asked what their employer could do to increase their interest in the plan. One-quarter (25%) would like their employer to provide more information or to explain the program, with women (30%) more likely than men (21%) to say so.

“We really have to try to get members to think long term,” says Linda Do, consultant, investment consulting, with Towers Watson. “Although it is human nature to prioritize what needs to be addressed right now, plan sponsors can help to bridge the gap by getting members to establish a retirement goal. It helps to engage members because they can track and monitor their goal to see if they are on track. If there is a huge shortfall, this should prompt them to take action, whether they need to contribute more or whether they should ensure that their assets are invested appropriately.”

Whether or not plan members are actively engaged, a strong majority (71%) of those surveyed said they think of their employer more positively because of the retirement plan and other benefits offered as part of their compensation—down from a high of 82% in 2008 but up from 68% in 2009 and 2010. Those in various income brackets expressed different levels of agreement: only 59% for people earning less than $30,000 a year, but 80% among members making $100,000 or more. And nearly three in five (56%) said they would be reluctant to leave their employer because of the retirement plan and other benefits.

“Getting members to understand the value of their plan is something that would help members be more interested,” says Del Balso. “I can understand why young people are less interested or less involved, and I can also understand if you have a lower income, because you have less at stake. But what I find concerning is that throughout the study, females are more likely to indicate that they don’t seem to understand (their plans, their risk profiles, what they need to contribute, etc.) and that they need more information to get them to participate, so whatever we are doing is not working for that population.”

Do agrees that more needs to be done to boost engagement among plan members. “There is always going to be one group that are the true defaulters, who will remain disengaged and have little interest in their retirement plan,” she says, adding that sponsors need to address this group by establishing an appropriate default strategy. “But there’s another population within the membership that is ‘somewhat’ engaged, and plan sponsors should improve communication to this group. With some nudging and prompting to take action, this group has the potential to become engaged members who are more actively involved in managing their account balances.”

The closer members are to retirement, the more they appreciate the plan, says Gregory, pointing out that the more money they have saved, the more they become engaged. “You need to find a way to create an emotional connection for members to understand that they have to do something to be ready for retirement. What plan sponsors need to do is nothing new: get members in sooner so that they grow their balances faster and can appreciate the plan sooner.”

Action steps

  • Break information down into bite-sized pieces and use a range of media to address different learning styles.
  • Educate employees about basic budgeting to show them how they can pay down debt and save for retirement.
  • Encourage members to establish a retirement goal and then show them how to track and monitor that goal.
  • Establish an appropriate default strategy for the unengaged.
  • Develop strategies to turn “semi-engaged” members into engaged members.

Get a PDF of the 2011 CAP Member Survey.

Copyright © 2020 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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