Setting up a DC plan can be relatively easy; getting your employees to enrol and make smart investing decisions is much harder.

“We’ve spent, as an industry, far too long trying to turn our members into investment professionals,” says Zaheed Jiwani, senior vice-president, client strategy, with Greystone Managed Investments. “Most people are not going to have the time or the knowledge or the ability to make the right choices on the investment side.”

James Clark, president of Dunhelm Consulting, concurs. “There are very few people who are capable of doing that.”

A 2012 study by the Canadian Securities Administrators bears that out: 40% of participants failed a general investment knowledge test, which consisted of seven questions about compound interest, investment risk, diversification, mutual fund returns, warning signs of fraud and the relationship between interest rates and bonds. And 29% of Canadians had unrealistic expectations of market returns. (At the time, a reasonable market rate of return was defined as anything less than 4%, based on the five-year nominal return of 4.1% on three-month treasury bills, Canadian bonds and the S&P/TSX Composite Index between 2007 and 2011.)

Read: Industry aims to improve financial literacy

Most corporate investment literacy initiatives have focused on educating plan members about different financial instruments, such as bonds and equities. But that’s changing, says Clark.

“Some of the plans or structures that are being developed now are offering the members access to investment advice, which takes a more holistic approach to how the DC plan fits into their overall investment strategy — then, more broadly, how that fits into their financial situation overall,” he explains.

Just as some companies are now offering healthy living advice as part of their healthcare benefits, plan sponsors are exploring providing financial education and the option to receive professional advice.

Is it advisable to offer advice?

While some companies might not be comfortable giving plan members access to financial advisors, it will likely become more common due to pressure from plan members, says Karrina Dusablon, national vice-president, business development, group retirement savings, with Desjardins Insurance.

The advisor “can look at what [employees’] goals are in life and can integrate that into the management of the DC plan,” notes Clark. The advisor would then be able to see a member’s complete financial situation and provide advice on investment choices within the plan to reflect his or her external assets, rather than the member making DC plan choices based on education offered by the plan administrator.

What’s emerging is an overall financial wellness strategy, says Dusablon, which could improve employee engagement and productivity. The Manulife/Ipsos Reid 2014 Health and Wellness Study finds financially prepared employees are up to 22% more engaged at work than those who are financially unprepared. The study defines an engaged employee as someone “who cares about their work and accomplishing company goals, and isn’t working just for the money.”

Read: Financial wellness: The missing link in your employees’ financial plan

Financially prepared employees (defined as those with financial and debt management plans as well as an appropriate level of debt) are 18% more likely to say they’re motivated to do their best at work. Financially unprepared employees are twice as likely to be unfocused and distracted, and 80% are more likely to be living paycheque to paycheque.

In 2012, RBC launched its financial literacy initiative, Invest in Yourself. The program tries to get employees to spend more time thinking about retirement savings and financial planning in general.

“We offer what we call ‘advice events,’ which are information sessions hosted by financial advisors,” says Tim Mark, RBC’s director of Canadian pension and savings. A typical advice event is about an hour long, with a 45-minute presentation followed by a 15-minute question-and-answer session with the company’s in-house financial advisors, insurance experts and pension experts from HR. The sessions cover topics such as transitioning to retirement and investing based on a plan member’s stage of life. There are about 10 events annually, each with an average of 200 employees in attendance, either in person or via webcast.

Read: How BMO boosts its staff’s financial literacy

But offering access to advice does come with risks. Under the CAP Guidelines, plan sponsors providing financial advisors to their employees are required to review and monitor all of their service providers, says Jiwani. But keeping track of what they’re telling plan members can be challenging. “The risk on the other side of not doing it is that, quite honestly, your members are not going to be best prepared for retirement,” Jiwani adds.

Because it’s difficult to monitor each individual, many U.S. plan sponsors have decided not to offer financial advisors. Some choose to offer robo-advisors instead — online wealth management tools that are much easier to monitor than a real-life financial planner. (For more on robo-advisors, see The rise of the robo-advisors.)

However, there are benefits to an individual consultation with a planner versus receiving instructions from a robo-advisor. One is the in-person interaction, which people generally prefer, says Jiwani. The other benefit is a more customized approach, which can tailor solutions to a member’s unique situation, as opposed to putting the member into an investor profile type through an automated tool.

The value of simplicity

Educating plan members begins with communication. Dusablon says the industry needs to target communication and education campaigns with a multitouch-point strategy. “We need to align our strategy with the corporate culture of the organization.”

At RBC, sessions are targeted at members depending on their stage in life: starting out, building wealth or nearing retirement. The bank offers online learning modules to help members improve their financial knowledge on topics such as managing debt and choosing insurance. There is also access to retirement and savings calculators.

Read: Employers increasing financial education opportunities

Jiwani says many plan members don’t understand the details of investment fees. For example, they might believe retail mutual funds are inexpensive and may not know the funds offered in their group plan are cheaper. If members were more aware of the fees, Jiwani believes there would be an increase in plan membership.

“They’re potentially getting a match, they’re getting lower fees, and they’re typically getting better investment options,” he says. “On all three levels, their group plan would be far more beneficial than the personal plan.”

Clark believes plan sponsors shouldn’t spend too much time educating DC plan members about investments. Instead, they should provide much more simple solutions. “The vast majority of DC plan members should be put in a single default option target-date fund,” he says.

Read: Canadians need help with their retirement portfolios

Investment versus financial literacy

Investment literacy is being knowledgeable about investment types, asset allocation, portfolio rebalancing and achieving investment goals. Financial literacy means having the knowledge and expertise to make financial decisions responsibly, such as knowing how to handle debt and accumulate assets.

Mark says TDFs are what RBC’s employees want. Before offering TDFs, the company surveyed DC plan members to find out if they’d want to build their own portfolios or have professionals build them. More than half said they would prefer the latter. Employees still have the option of choosing which funds they want, but TDFs are the default option, and the majority of plan members are in those types of funds. Mark doesn’t see that as a lack of engagement because it’s what employees prefer.

In some cases, just getting employees to enrol in the plan is challenging. Some organizations are able to sit down with each employee and educate him or her at an orientation session when the employee joins the company. Smaller companies may find it easier to have those conversations.

At larger organizations, plan providers are starting to offer additional services. The record keeper may sit down with members and walk them through the enrollment forms — a service that’s usually offered at no cost to the plan sponsor because the administrator wants to get more people, and more assets, into the plan, Jiwani explains.

Read: Video: How M&S implemented auto-enrolment

Plan enrollment is now part of the onboarding process at RBC. All employees are automatically enrolled and can choose to auto-escalate their contributions. The bank provides matching contributions for employees who opt to contribute, as well as an auto-contribution for all. “It’s kind of like saying, ‘We’re going to give you money whether you like it or not,’” says Mark.

Dusablon believes auto-enrollment and auto-escalation can improve employee participation. “However, you need to make sure that a member takes an active role in their retirement planning,” she adds. “It’s not doing everything for them, but [it’s] making it easier for them.”

Craig Sebastiano is associate editor of

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Copyright © 2021 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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A couple of points. The preoccupation with investing is misleading: yes managing a pension involves investments but more importantly it involves being aware of your pension ‘liability’ where interest rates, volatility, longevity and funding are the most importantbut least understood or ignored issues in the CAP world. The preoccupation with investing is one of the many fatal flaws of CAPs, The suggestion that financial advosors are the answer also ignores the significinat negative impact their fees have on the pension assets. Most importantly, and like it or not, as a sponsor when you offer a CAP you take on the responsibilty for providing education to a by and large, very reluctant and uniformed audience.

Monday, June 29 at 5:18 pm | Reply

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