Plan sponsors often say they’re quite happy with their retirement savings plans. But is that position good enough to ensure an organization’s plan is competitive and benefits its plan members?
Some of the trends across Canada, as evident from employee requests, reflect the changing needs of the workplace. They include:
Group RRSPs or TFSAs with a DPSP component:
Alongside the move from to defined contribution plans is a further shift to group registered retirement savings plans with a deferred profit-sharing component. In fact, group RRSPs and DPSPs now outnumber defined contribution plans two to one, according to the Canadian Institutional Investment Network’s 2017 survey of capital accumulation plans. RRSPs and DPSPs offer the employee and employer more flexibility and less red tape than traditional defined contribution plans.
In addition, employers are taking less of a paternalistic approach to the group saving plan and are permitting even more flexibility on the employee portion of the contribution. Rather than monitoring employee contributions and having employees pay taxes on the withdrawals, employers are simply allowing workers to save for whichever goal they have through contributions to a tax-free savings account with an employer match in a long-term vehicle such as a DPSP. The approach offers flexibility over the employee’s funds while allowing for restrictions on withdrawals and retention inducements on the employer-contributed component.
Reducing investment choice in group plans:
This isn’t new, but it continues to become more popular with plan sponsors. In the past, it was common to have as many investment choices in the plan as possible, but the industry came to realize that actually prevented members from making a clear decision. So for several years, plans have been reducing their investment menus to offer only a few relevant choices, with an increased effort to include a passive/index option due to market trends and lower fees.
Reducing eligibility periods:
It used to be fairly standard to allow employees to join a group savings plan after one year of employment. But with the competitive nature of the workforce, companies have been waiving eligibility times for certain employees.
Overall, the recurring theme when it comes to plan design is listening to what employees want. If an employer can’t convince a 25-year-old employee of the value of a plan created for 40 years in the future, why wouldn’t it change some key elements to match the worker’s perception of value?