Notably, a survey of 174 Canadian DC plan sponsors recently released by Hewitt indicates that nearly three-quarters of the respondents would like Canada to adopt similar Safe Harbor protection as the U.S. with regard to investment advice, investment selection and default investments. However, only half of the same respondents were in favour of the CAP Guidelines being formalized into legislation.
The DC plan market in the U.K. has gone in a very different direction on the communications front, observes Thorley. Legislation pertaining to pension plan administration in the U.K. is much more restrictive than Canada or the U.S. in terms of what is defined as information versus advice, Thorley says. As such, he adds, member communication is strictly information-driven.
U.K. auto-enrollment legislation
The main thrust of the DC plan market in the U.K. at present relates to regulatory change, says Thorley. Legislation has already been introduced that will require auto-enrollment of employees into pension plans (with an opt-out option), as well as compulsory employer contributions, beginning in 2012. “This will be a significant shift in the pension landscape, and the communication challenge now is to make employees understand these changes,” he adds.
In doing so, pension administrators are generally sticking to the traditional media of workplace group seminars and print literature, Thorley says. Once auto-enrollment becomes effective, he expects this will result in a communication shift from promoting participation and general plan information to addressing more specific subjects such as risk diversification.
But, like Canada, the U.K. does not afford plan sponsors any form of litigation protection for advice provided; therefore, all member communication remains information only, says Thorley. “Member education [in the U.K.] is focused on what investment options are available and how a plan operates.…Otherwise, we strongly recommend plan members to consult a personal financial planner for advice.” In this respect, he believes DC plans in Canada are perhaps closer to providing more personalized guidance to plan members than those in the U.K.
The use of online pension and financial planning tools enabling members to simulate different contribution levels is becoming more prevalent in the U.K. market, Thorley confirms. However, he notes that this is currently not a significant channel of member engagement. “We’re working on developing more interactive online tools, but there’s nothing blindingly obvious going on in the U.K. at the moment.” Currently, the core member communication vehicles applied in the U.K. are group seminars combined with face-to-face interview sessions and print literature detailing the workings of the plans. Thorley adds, “The communication formula is unlikely to change in the near future, except perhaps for development of online tools targeted specifically at the younger generations.”
U.S. advice trends
The DC industry in the U.S. has far outstripped developments in Canada and the U.K., having crossed over from providing information only to presenting individual members with “discretionary advice” (i.e., specific recommendations, such as investment fund selection). This switch to personal advice was motivated, for the most part, by the introduction of the PPA in 2006.
A survey of 146 U.S. plan sponsors conducted by Hewitt Associates at the end of 2008 suggested that 87% of plan sponsors would be focusing their DC plan member communication initiatives this year on the need for investment fund diversification. Notably, the survey results indicate that nearly half of the respondents offer in-person financial education seminars or classes as part of their member communication programs, while 38% utilize webcasts to reach employees. “[Investment] market conditions in 2008 have motivated a need for more understanding of the workings of a DC plan, as well as the need for risk diversification and understanding one’s time horizon until retirement,” says Heather Tredup, a retirement communication consultant in Hewitt’s Illinois office.
According to another Hewitt survey, the top priority of Canadian capital accumulation plan sponsors in communicating with members this year is a general understanding and appreciation of the workings of plans. Closely following this is the need to address the current volatile investment market environment. Hewitt’s survey shows that 54% of the respondents presently provide online investment guidance, while 49% maintain phone access to investment advisory services. About 47% of the respondents make in-person financial educational seminars available.
Overall, approximately 55% of the plan sponsors surveyed offer online investment guidance, while 38% offer online advice and 30% offer phone access to advisory services. “In terms of how plan sponsors are pushing these messages out, online and internet tools are popular and effective ways to reach employees. Three-quarters of respondents are utilizing their Intranet site, 60% are using email blasts, and 49% are using webinars,” the Hewitt survey indicates.
There is also a move by plan sponsors to address retirement lifestyle issues such as longevity risk, inflation and medical costs in their education initiatives, but such advancements are still in their early development, comments Tredup. “I think, in coming years, there will be more of an advice and educational focus on retirement planning for the drawdown period, but at the moment, the focus is on investment risk diversification.”
However, the majority of plan sponsors are still providing only broad guidance in this area—mainly through online tools, Tredup notes. Most of these online services incorporate investment calculators and are designed to enable members to factor in their other investments, she adds. “But most don’t include individual investment advice.”
Canada at a crossroads
Today, retirement planning and member communication in Canada remain education-driven, say most pension consultants. “If you draw the line between education and advice, the vast majority of plans are still providing only information. But there are definitely more advanced tools available to members today,” says Gilbert.
While DC plan sponsors are aware of the growing need of members for better retirement planning tools and personalized investment advice, the challenge is the lack of legislative protection. “The anticipation is there [among plan sponsors], but the focus is still on education, though this is now being targeted on a more personalized level,” Gilbert adds.
Smoothing the road to retirement for plan members continues to be a challenge for employers. Eventually, plan sponsors and administrators will have to address the issue of personal advice, Dusablon predicts. However, without any legal protection for plan sponsors, Canada may remain at a crossroads for some time.
Sean van Zyl is a freelance writer in Toronto.
s.vanzyl@rogers.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the November 2009 edition of BENEFITS CANADA magazine.