Some employers are opting to automatically enroll employees in workplace retirement plans and to increase contribution rates in the same way. If only strong member engagement in these plans was so automatic.
“Engagement is about employees being aware of the value of the plan and the contributions made by their employer,” says Eric Filion, vice-president, development, marketing and investment strategies, group retirement, with Desjardins Financial Security. He warns against over-reliance on auto-features: “People still need to be active in taking care of their financial planning and economic future.”
Recognizing value
Idan Shlesinger, managing partner, DC pensions and savings plans, with Morneau Shepell, says that although some private-sector employers offer capital accumulation plans (CAPs) to help employees prepare for retirement, the core reasons are more about competition, employee loyalty, recruitment and retention.
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Rather than enrolling and increasing contributions “by stealth,” Shlesinger would prefer that companies include pension enrollment in the benefits sign-up process at the time of hire. “We could do more to integrate the process and make it more user-friendly,” he says. “To build engagement, I think it is better to provide a model to make it easy to project retirement incomes in an easy and intuitive way. Let people see the impact of their contributions and allow them to auto-escalate their own contributions by going to the website, where they may choose 3% to start and then increase by 1% in coming years.”
The CAP industry is coming to accept that few plan members will become passionate investors. However, members may become more engaged in their plans if they better understand the link between contributions and retirement outcome.
Tom Reid, senior vice-president, group retirement services, with Sun Life Financial says: “We’ll never stop teaching people how to be an investor, but we recognize that not everyone will become one. With auto- enrollment and auto-escalation, a person can get to a pretty good place by age 50 and then take control since there is still a long window to generate retirement savings.”
Emphasizing outcomes is important because it provides focus. “How much do you need in retirement?” says Reid. “You won’t have 70% replacement income if you save only 2% of your [working] income. Based on your savings rate and how you are invested, you will have this many dollars, and if you don’t have enough to achieve your goal, here is an action plan: increase savings, retire later and invest more aggressively.”
“It’s like having a built-in personal trainer––a system in place to gradually ensure you are meeting your goals.”