Two days that changed the way plan sponsors think.


Session A(9:00-9:30): Aiming for success
The message and the methods: the power of targeted communication in a DC world

Lori Bak is vice-president, client relationships and marketing, Sun Life Financial

In marketing lingo, it’s called “spray and pray”—the practice of sending communications to a wide, diverse audience and hoping(praying)that the message will resonate with at least a portion of the recipients. It’s costly as the return on investment is often disappointing if the message only hits the mark with a small percentage of the intended audience. However, this approach may be the only one available when the sender knows little about the audience she is communicating with or does not have the means to send the message any other way.

Defined contribution(DC)sponsors have, in the past, seen this kind of approach as the only option when communicating to plan members. Now, under pressure from pension committees to produce measurable, tangible results and justify the spending on plan member communication, sponsors are looking for a better way.

Targeted communication delivers distinct, relevant messages that resonate with the recipients and foster action. A broad audience is segmented into smaller target groups based on user characteristics or demographics. Targeted communication is then delivered either a)to small groups of recipients identified by key traits or behaviour or b)to a large audience but with varying elements of text that speak directly to specific segments of the overall audience.

The key to making targeted communication work is the data. The availability and the quality of the data are crucial to a successful campaign. The problem is privacy. Data must be treated with respect and used to help members make the most of the benefits provided to them, not to make them feel that big brother is watching.

Targeting Communication

Canadian DC plan sponsors are just starting to toe-test the waters of targeted communication. A few examples of where member characteristics are being used to deliver more targeted and effective messages are:

Introducing new asset allocation funds: Although the communication needs to be delivered to all plan members, using data on date of birth allows the sponsor to tailor the message to meet the needs of different age groups of members and address which fund is right for the member.

Joining or leaving the plan: Career-stage data can be used to provide just-in-time information about the decisions members need to make at a time of transition. Again, knowing the age or life stage of the plan member helps to direct the communication to specific issues that may impact the decisions she needs to make at that time.

Behaviour-driven communication: This is where a member activity—or lack of activity—triggers the generation of a communication to the group of members who exhibit this behaviour. The most prevalent example of this is communication to members who are 100% invested in the plan’s default fund. Communication would be directed to this group only—not the entire member community and could address the impact of being 100% invested in what is likely a money market fund at the member’s life stage.

Session B(9:30-10:00): Seeds of knowledge
The message and the methods: effective education of plan members

Richard Whitbread, pension and benefits manager, Agricore United

Agricore United was faced with a number of challenges following a merger several years ago. After melding three companies together with distinct cultures, pension and retirement savings plan approaches, and communication methods, the challenges were clear. Employees did not understand the defined contribution(DC)retirement plan and capital markets. They were resistant to entering the plan due to mistrust about the company’s intentions and were racked with indecision when it came to their investment choices. As a result, there were a high number of defaults to the money market fund and low contribution levels.

A number of other issues emerged as Agricore explored the opportunity to address these challenges. Employees of all ages with a broad range of education and experience were entering the DC plan with little or no knowledge about capital accumulation plans. They demonstrated little knowledge about the basics of financial and retirement planning and government- sponsored retirement plans. Employees were also reluctant to take responsibility for their own retirement investment plans.

Agricore’s concerns centred around four key points. First, that employees have valid retirement and savings plans available to them. Second, that they understand and appreciate the company’s investment in pension and retirement savings plans. Third, that employees use the pension and retirement savings plans. Finally, that the company has a solid plan of action that would mitigate future risk. Since implementing the education classes (see “Finance 101”), Agricore has seen a direct connection between member attitude and behaviour.

Finance 101

Agricore established a framework of programs that it believed would start to address the issues. These included a quarterly newsletter, Internet and intranet sites, a zero tolerance for default enrollments and lunch-and-learn sessions. The cornerstone of the education and communications strategy was three one-day workshops that provided an opportunity to overcome a number of the challenges and issues faced by the company. Supported by its board of directors and senior management group, Agricore set out to develop the following workshops.

Workshop one: “Getting Started”
This workshop was designed to cover investment basics and the fundamentals of retirement planning. Since its inception in late 2004, 1,300 members (approximately 60% of the employee base) have attended the session and rate it very highly.

Workshop two: “Staying on Track”
This workshop is being developed in 2007 for delivery start-up late this year. Members will review their statements, investment allocation, Internet site and other elements of their plan. They may attend this workshop five or six times over the course of their career.

Workshop three: “Nearly There”
This workshop was designed for members who are within 15 years of retirement. It reviews the essentials of time and money management principles in retirement.


Session C(10:30-11:00): Drive it home
Advice and your plan members: advice you can use; automated advice in a DC plan

Eric Airola, director of benefits, J.B. Hunt Transport Inc.

Every day, 17,000 J.B. Hunt Transport Inc. employees are driving trucks and providing customer service that go into running one of North America’s major transportation companies. Orienting 500 drivers per week in more than 300 locations creates challenges for enrolling employees into the 401(k)plan and helping them make good investment decisions.

In 2003, the overall 401(k)participation rate for J.B. Hunt was 37%, and many of those were not well diversified. During the orientation and in ongoing plan education sessions the company provided, the most common question employees were asking was “How should I invest?” The investment options were fairly simple, with 10 funds and a lifestyle-type offering. Yet members didn’t know what to do and often simply went with what their friend in the next cubicle or truck suggested.

J.B. Hunt introduced the advice tool in October 2004. By December, plan participation had climbed to 40%, and almost 800 members were enrolled in advice. Two years later, advice enrollment increased to about 1,500, representing 19% of participants. Overall plan participation was at 46%, an increase of 27% from three years earlier. The average account balance increased by $2,000, and asset allocation improved.

A valuable aspect of the advice tool is that anyone can use and personalize it. For employees who don’t want to spend a lot of time on their investments or have no portfolio outside the 401(k), a strategy can be based on basic information, such as age and income, which the advice tool uses to determine asset allocation. For the investor who has outside holdings such as savings bonds or stocks, or would like to include a spouse’s retirement plan, this information can be incorporated into the program for a tailored asset allocation that will complement them.

The solution is also flexible. As a participant experiences life changes such as marriage or the purchase of a home, these factors can also be considered by the tool. Best of all, the participant’s account will automatically reallocate and rebalance every 90 days. This feature is a huge benefit to the J.B. Hunt membership, many of whom don’t regularly monitor their accounts and tend to leave things the way they are, regardless of changes in age, income or market conditions.

Session D(11:00-11:30): Seeking simplicity
Advice and your plan members: embedded guidance; the next generation

Brian Cyr, management associate, investment program, group savings and retirement, Standard Life Canada

Capital Accumulation Plan(CAP)members face an increasing variety of investment options to choose from. Diversified by asset categories, styles, capitalizations, investment processes and firms, the choices can be staggering. The high level of specialization of these options adds complexity to the CAP members’ decision-making process that leads to their disengagement.

They don’t understand complex investment issues and we need to engage them in the process. With the use of technology and embedded guidance simplified solutions can be delivered to them through managed products.

Managed products have surfaced to provide the guidance that would simplify plan members’ decision-making by tailoring the asset allocation by segmentation. Lifestyle funds(targeted by risk profile)and lifecycle funds(targeted by investment horizon), and, more recently, customized investment portfolios have emerged. Customized portfolios are designed specifically to meet plan sponsors’ and members’ specific needs and profile. Their design takes into consideration both a member’s willingness and capability to undertake risk. A plan’s existing fund line-up is used to build the portfolio, so they take into account its unique characteristics. By utilizing the existing funds, sponsors are able to measure both costs and performance, easily enhancing overall plan governance.

Factors that plan sponsors should consider when selecting and monitoring investment options, as recommended by the CAP Guidelines, are built into customized investment portfolios. The purpose of the plan, the diversity and the demographics set the foundation of the product’s design. The overall number of options can be reduced to reflect the increased choice of balanced portfolios. Fees are adjusted to offer cost-effective solutions to plan members. The plan sponsor can more easily monitor the portfolios’ components and replace underperforming fund managers under a controlled setting.

Customized Portfolios

Benefits for the plan sponsor
• easily integrated with member communication
• portfolios are composed of existing funds within the plan
• costs and performance of each fund is transparent
• multi manager approach
• an interesting default option

Benefits for the plan member
• easy to determine where they fit
• transparency for those who want it
• lifecycle movement keeps them in the right asset mix as they age
• automatic rebalancing keeps assets in line with investor profile
• diversification in one easy step

Session E(12:45-1:15): Support system
Preparing for a future that’s already here: supporting members into retirement

Jeff Aarssen, vice-president, distribution, Group Retirement Services

Rising longevity means that plan members may spend up to a third of their lives in retirement—their retirement income needs likely span 25 years. As such, anxiety about retirement is mounting among baby boomers. Up to half of Canadian boomers feel they’re not on track with their retirement savings. So it’s not surprising that supporting plan members into retirement is becoming increasingly important for sponsors who want to ensure employees understand what their retirement plan does—and doesn’t—deliver.

Responsible plan design

Can defined contribution plan design save the day? It’s no panacea, but it will help. By shortening waiting periods for employee participation, making participation mandatory, providing mandatory matched contributions and escalating matched contributions, sponsors can create an environment that encourages responsible saving. With a lifecycle or target date fund as the plan’s default, even members who don’t pick specific funds are usually better off than they would be with a money market fund as the default.

Seamless transition

Capital Accumulation Plan(CAP)Guidelines refer to retirement as a type of “termination,” but do members see it this way? They are asking for a seamless transition for their retirement funds and don’t want to change providers or look for other investment products. Benefits Canada’s 2006 survey of CAP members found that 67 per cent of respondents want to keep their investments with the same manager. Retirees considering payouts should be informed that there’s a range of options available, such as purchasing an annuity for recurring expenses as well as a Registered Retirement Income Fund for discretionary spending. Many factors influence payout choices, such as the age of the member’s spouse, base household income needs and special needs such as healthcare.

What to choose

Members need a push to do what’s best for them: pay attention to their retirement nest egg. Is it time to follow some sponsors and eliminate the choice to enrol, the choice of a fund default and the choice of whether or not to escalate contributions? What about payouts? Should all retirees receive annuities to ensure they do not outlive their funds? Perhaps the choice is to use elements of each of these concepts. Certainly the industry can agree on one thing: let’s do a better job of preparing members for retirement, starting now.

Session F(1:45-2:15): DC Auto-pilot
Plan design and innovation: putting your DC plan on autopilot

Sharon Seifried, assistant vice-president, plan design and implementation, Manulife Financial

The DC industry has made inroads with member education; however, it’s not effectively capturing disengaged members—precisely the participants who run the greatest risk of reaching retirement and being surprised by an income shortfall. If they discover a shortfall when it’s too late for them to correct the issue, they may direct their frustration toward the same plan sponsors that have worked so hard to build interest and engagement.

Dealing with disengaged plan members requires a change in the current approach to plan design. Instead of expending effort to coax the reluctant into making choices they can’t—or won’t—make, sponsors and suppliers in the U.S. are taking the opposite approach. They’re offering plans that put members on a stronger footing from the start.

In the U.S. market, a number of automatic options are now in position and proving as popular with members as they are with sponsors. Rather than making a conscious effort to get into the retirement savings game, a member has to make a conscious effort to get out. This reduces the risk that the same member could push responsibility onto the sponsor at the end of the accumulation phase since the member made an active choice to leave. While members always have the choice of opting out, industry experience to this point suggests most participants will take the easiest option and stay where they’re placed.

The choice of a suitable default investment completes the design picture as sponsors move toward lifecycle funds tied to the member’s age and projected retirement date.

We’re seeing a strong direction set by plan sponsors south of the border, combined with studies from the U.S. and Canada that reinforce a member preference for direction. While there are still significant regulatory differences, we will begin to see similar trends in the Canadian retirement savings industry.


According to research compiled by Prudential in the U.S., participants are not likely to balk at their sponsors’ efforts. In its Fifth Annual Workplace Survey, Prudential asked the youngest workers— those age 21 to 30(the Millennial Generation)— for their views about being automatically included in a retirement savings program. Respondents expressed gratitude or optimism about being automatically enrolled(66%), about having a specified or minimum contribution(54%)and even about supporting a program of automatic contribution increases(50%).

Session G(2:15-2:45): Meet the challenge
Plan design and innovation: the future of savings plan

Andrew Dierdorf, portfolio manager, Fidelity Investments

Various studies have shown that, when left to their own devices, many plan members make exactly the wrong choices. For example, plan members who are only a few years from retirement often place all of those savings into volatile equity investments. Younger plan members, with decades to weather the storms of equity markets, often content themselves with the low returns of GICs(based on Fidelity Investments’ 2005 Building Futures Report).

Lifecycle funds are a possible solution to tackle these issues. These funds are simple to use, because all the member has to do is answer the question: when do you expect to retire? Only one investment decision has to be made and it will remain valid throughout the member’s entire working career. At the same time, the member benefits from the oversight and direction of professional portfolio management.

How it works

The basic premise of lifecycle investing is straightforward: based on decades of past performance of equity, bond and cash investments, it is possible to design an appropriate mix of assets for any goal and for any point in an investor’s lifecycle. In practice, the goal is usually retirement.

A well-constructed lifecycle fund will invest more in asset classes with greater return and risk when the individual has a longtime horizon to retirement. Then, in a gradual and disciplined manner, the portfolio is automatically adjusted to become more conservative over time as retirement approaches. A lifecycle fund can also act as an excellent core holding during retirement, when the plan member starts to draw on the accumulated assets.

In the U.S., lifecycle funds are being used as the default investment option in many company-sponsored plans. The Pension Protection Act has recognized these funds as a “qualified diversified investment alternative.”

Lifecycle investing can help put more plan members in a position to achieve their retirement savings objectives, while also helping to protect the value of their investments when it matters most. The goal should be to put more Canadians on the track to achieving important lifetime goals, while giving them a greater sense of confidence in coping with the ups and downs of investing in the securities markets.

Plan member hurdles

1. Plan members lack the knowledge to make the right choices.
2. They don’t have the time to develop and follow an effective investment strategy.
3. They don’t feel confident about selecting investments.
4. They are overconfident and apply strategies that are too risky.



Session A(8:15-8:45): A second life
Investment session: retirement is so old

Bruce Winch, vice-president, institutional investments, AIM Trimark

No longer seen as a withdrawal into old age, many now describe retirement as a new beginning—a second life. Because defined contribution(DC)plan members look to their employers to help them have the retirement they want, it’s imperative that employers adapt their planning approach to be compatible with the way people now view retirement.

After an individual determines how much money he or she will need for a comfortable retirement, the next step is deciding how to reach that goal because the nest egg has to keep up with living requirements. For many, this involves taking on an element of investment risk. Conventional approaches to investment risk consider the volatility of returns, except that what really matters to people is the end result. It’s the standard of living they’re able to maintain that counts.

If living standard risk properly takes centre stage, then tracking error also becomes irrelevant to DC investors, and with it the premise that investments with high variances to benchmark returns should be avoided. Tracking error is merely an arbitrary measure of volatility unconnected to people’s unique financial situations. Not to mention focusing only on those investments with low tracking errors is a sure way to limit a portfolio’s possible terminal value. While actively managed funds are labelled more volatile than funds with low tracking errors for varying from their respective benchmarks, they have the potential to return greater end values. The difference in terminal value between a true active fund and its low tracking-error counterpart can mean the difference in someone achieving the end portfolio value he needs to reach his retirement goals.

From the perspective of terminal value, risk increases over time, as the longer an individual’s investment horizon, the greater the opportunity for him to miss his objective. The retirement industry needs to do a better job planning appropriately for the new retirement. Directing efforts toward the proper goalposts—terminal value primarily—is critical to ensuring DC members have the retirement they want.

Session B(8:45-9:15)A member’s mind
DC investment issues: investing for a lifetime

J.C. Massar, chairman, Capital Guardian

Creating a retirement plan for both the accumulation and distribution stages has many nuances and is not the same as simply giving advice or providing education. A retirement plan is more holistic; it is a road map that takes into account a person’s investing lifetime, her personal objectives for retirement and the corrosives, such as inflation, that can impede even the best-laid plans. Plan sponsors must not only ensure they have an adequate plan but they also must monitor the plan to ensure it is helping prepare participants for retirement. This requires an understanding of behaviours that are well-known barriers to savings. These behaviours fall into three categories.

Hyperbolic discounting: Seeking immediate gratification versus focusing on long-term goals, especially when these are presented simultaneously.

Loss aversion: Research has shown that a loss is felt disproportionately more than an equivalent gain; the sting of a loss can have twice the impact of the pleasure of a win.

Inertia, or procrastination: A common problem, perhaps aggravated by the distant horizon of retirement.

The retirement industry must help educate participants about retirement planning and to provide tools and programs that can help them achieve their retirement savings objectives.

Three investing principles frequently used to help participants understand the importance of such a plan, and to help them overcome some of the barriers to savings, are:

Time, not timing: Time is your ally, and investing sooner can have a great impact on long-term results.

Diversity matters: Know what you own and why you own it.

The new math of the distribution phase: Simply put, investors in the accumulation phase often have time on their side to adjust to unforeseen events, make mid-course corrections and weather market declines. This is not the case for those in the retirement distribution phase.

Finally, there are some emerging best practices that are being implemented in the DC market in the United States that are proving to be quite promising. They are automatic enrollment of new employees; automatic increases of contribution rates; and a target date-like portfolio for the default investment option.

All are worth considering and should help participants reach their savings objectives.

Session C(9:15-9:45): Slow moving
DC investment issues: benefits and risks of global allocations to DC plan members

Adam Petryk, deputy chief investment officer, Legg Mason Canada Inc.

An important consideration when contemplating the weight allocation to Canadian equity is the double impact that commodity prices have on Canadian currency positions. The primary impact is due to the high resource weighting of approximately 44% in the TSX versus 15% in a global equity portfolio. This is compounded by the strong positive correlation between commodity prices and the Canadian dollar. Hence, an investor in Canadian equities does well in a rising commodity price environment both through the strong local currency return of the Canadian equity market and also on a currency-adjusted basis relative to other foreign equity markets.

Where’s the risk?

A significant risk is remorse. Inertia may well be rewarded if the commodity run continues and Canada outperforms. This is a risk that cannot be controlled and may well result in global diversification being delayed, unfortunately, until there is a period of underperformance when everyone is looking to diversify.

Another risk is that active management is more challenging in a global context. It takes a stronger portfolio management capability to build a return-enhancing, well-diversified global portfolio as opposed to a domestic Canadian one. This means moving assets to global as opposed to domestic investment managers and has significant ramifications for the domestic investment management industry in Canada.

The third risk is that of the currency exposure associated with unhedged positions in global securities. Some of the risk should be hedged away but typically are not in most portfolios.

To hedge or not to hedge?

Current default products are not quite right in terms of the mix of foreign equity and currency exposures. Global balanced funds today do not hedge currency exposures from a domestic Canadian perspective and have too much foreign currency exposure. The average domestic balanced fund with the home country bias that leads to significant overweight positions in Canada may have the right amount of currency exposure but too much domestic equity. Given the challenge of making the appropriate trade-offs between diversification, return expectations and risk exposures, a good solution is to roll up these decisions into lifecycle or horizon-based funds. Relative to existing products most should be significantly increasing their foreign equity exposures but doing so on a currency-hedged basis.


The very fact that Canada has had a multi-year commodity run in what has historically been a cyclical industry should lead us to question the prospective sustainability of outperformance. On the fixed income side, it is important to note that Canada is no longer the high yield nation of developed markets, and yield levels tend to be good long-term indicators of relative performance.

Session D(9:45-10:15): The best fit
Building a better default fund solution: supporting members into retirement

Karen Welch, director of compensation and benefits, Four Seasons Hotels & Resorts in Canada
Zaheed Jiwani, senior investment consultant, Hewitt Associates

Choosing the right default fund was an important decision for Four Seasons. In the United States, approximately 20% of its plan members do not make an investment choice, while in Canada that figure is closer to 25%.

Four Seasons, like other plan sponsors, was looking for a default option that can, over time, achieve sufficient retirement income growth for its plan members. Money market funds are by far the most common default fund. They are chosen by 48% of plan sponsors, according to the 2007 CPF directory.

But are money market funds really the best choice? It is not surprising that money market funds have not had a negative return over holding periods ranging from five to 20 years. What may be unexpected, given a traditional balanced fund’s sizable equity allocation(60%), is that over the same periods, the balanced fund would not have lost money for members either. While a balanced fund may have a greater risk of losing money over the short term, that is not the case over long-term time horizons. Four Seasons Canada uses a balanced fund as its plan default option because it has low risk over the long term and increased growth potential as compared to money market funds.

Some would argue that the best option for a default fund, however, is a target date fund. It addresses the need to change the asset mix and allows for different levels of equity exposure.

One downside to using a target date fund as the default fund is that plan sponsors may feel there is no need to engage members. Similarly, members may lapse into complacency when it comes to making investment decisions. Being lulled into this false sense of security can be dangerous, given that the easiest option is not always the best one.

Member engagement

Innovation is key when it comes to engaging members. Some of the different methods used by Four Seasons in Canada and the U.S. to engage and educate plan members include:

Mini meetings: In addition to regular open enrollment/ investment education meetings, it holds informal ”mini” meetings during breaks on the job site.

Creating competition: Four Seasons introduced an enrollment competition which gave out small prizes to hotel benefit managers that get the highest percentage of members to enrol.

Free financial planning: All plan members aged 50 and over are offered a paid one-on-one financial/ retirement planning session.


Session E(10:30-11:00): DC Discipline
DC governance: risk management framework for DC plans

Becky J. West, director, retirement services, Russell Investments Canada Ltd.

In some cases, Capital Accumulation Plans(CAPs)are the only retirement savings vehicles offered by an employer. They have unclear strategies and a legacy of decisions that have resulted in ineffective plan design and implementation.

A potential solution to this current state is using the discipline employed by defined benefit(DB)plans. This involves the identification, categorization and management of the various risks associated with CAPs. This discipline would enable CAP sponsors to formulate a decision- making framework that is timely, proactive and adaptive to change. Both quantitative and qualitative risks would be captured in this comprehensive process.

The management of risk in a CAP within a disciplined framework can avoid a number of the issues faced today by CAP sponsors. Ownership of the risk management process is important to its success, so involving the appropriate stakeholders in both the formation and the ongoing evolution is necessary. Risk tolerance and metrics need to be established by the highest level of the governing process, and the oversight as to their implementation must be adequate to ensure success. Employing a plan-wide risk management process provides a logical structure for sponsors to develop their CAP strategy. This will result in a healthier retirement plan.

Mitigating risk

CAPs should develop a framework that has six desirable attributes. These include a plan-wide scope so that the perspective is not isolated to one aspect of the plan. The process should be forward-looking and flexible enough to accommodate change. The decision-making process should be clearly articulated so that the governing, managing and operating areas understand and can implement their responsibilities. Risks need to be classified so that they can be minimized and managed. The evaluation process for the risks needs to be systematic so that magnitude of risk versus potential reward can be measured. Finally, consistency of the assessment, measurement and managing of risk is imperative. This will allow appropriate choices and use of resources.


Session F(11:00-11:30): Legal council
DC governance: liability in the administration of pension plans

Elizabeth Forster and Alan Socken, Blaney McMurtry LLP

There has been little case law regarding the legal obligations of an administrator under a pension plan. However, litigation in this area has increased significantly in the last few years as baby boomers become more concerned about their pensions.

Statutory Liability

The provincial and federal pension standards legislation set out a number of obligations of plan administrators. These are ensuring that the pension plan and the pension fund are administered in accordance with the legislation and with the terms of the pension plan; ensuring that proper filings are done with government authorities; exercising care, diligence and skill in the administration and investment of the pension fund; using all relevant knowledge and skill that the administrator possesses; avoiding any conflict of interest; ensuring only suitable agents are hired; ensuring proper information is provided to plan members; and ensuring that all contributions to the plan are paid when due.

Common Law Liability

At common law, fiduciary duties include the following: a duty of care and loyalty; avoiding conflicts of interest; not profiting from his or her position as a fiduciary; and maintaining an even hand.

Typical cases

The majority of cases involving the common law liability of pension plan administrators fall into three categories:

Negligent misrepresentation: Administrators may be liable for negligent misrepresentation not only when they give pension plan members inaccurate information, but also in situations where they omit to give employees pertinent information.

Delegation: An administrator may be held liable if work that is delegated is negligent.

Fiduciary duty: These involve allegations of breach of fiduciary duty against pension administrators.

For a PDF version of this article, click here. For a complete version of the presentations, click here.

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


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

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