Transitioning to retirement: Get the message out

Statistics are a funny thing. They can be twisted and turned and manipulated to support or refute nearly any question. But they serve an important purpose and often shed light on important topics that may otherwise not get the attention they deserve.

Case in point is the last Benefits Canada Survey of Capital Accumulation Plan Members released in November. Some frightening statistics painted a grim picture of employee participation, which should act as a wake up call to plan sponsors. The survey showed that only 7% of those surveyed used employer-provided information to make investment decisions. Also, member contributions had declined from 7.3% in 2007 to 4.9% in 2010 and finally, only 21% of those surveyed recalled reading or hearing anything in the media about pension reform.

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Tack onto those statistics the demographic facts of Canada’s aging workforce and plan sponsors are left with a number of arduous tasks. They must work harder to communicate effectively and prepare their DC pension plan members for the inevitable transition to retirement.

The right choice
For a large plan sponsor like Hudson’s Bay Company (HBC) with about 40,000 DC plan members—28,000 of whom are active—the sheer amount of investment choice and the types of funds offered can often overwhelm employees with their retirement decisions. This year the retailer is moving to a target-date platform on top of the a la carte menu of investment choice it already offers. And while it is not a target date fund per se, it is a platform that allows for a reduction in equity investments over time.

“This year what we’re doing is helping plan members invest for their future and we are going with a target date approach,” says Michelle Chusan, senior manager, retirement programs and communications with HBC. She adds that although enrollment in the pension plan has always been mandatory for members and is a condition of employment, the new platform will allow members to be less intimidated about making the right investment choices and concentrate more on their retirement end-goals.

And this is a point industry experts agree with. Jean-Daniel Cote, a partner with Mercer, says plan sponsors need to be thinking about transition to retirement and that up until now, too much focus has been on the accumulation phase of retirement assets. “As we get closer to baby boomers starting to retire, of course, there’s going to be an increase in interest towards finding solutions and helping plan members [with their] transition,” he notes.

Marylin Lurz, pension consultant with Lynmar & Associates reiterates the point. “Employers have had a huge focus on the accumulation phase. They really have not spent a lot of time thinking about retirement and the de-accumulation phase and how best to assist plan members with that transition,” she stresses.

Only 7% of employees use employer-provided information to make investment decisions. Member contributions have declined from 7.3% in 2007 to 4.9% in 2010.

Even a plan sponsor like electronics retailer Best Buy, which operates with an extremely young workforce who often look at retail as a transition point to the next career, is beginning to consider the tools needed to help plan for and move into retirement. The plan sponsor rolled out a DC plan three years ago to show employees that Best Buy need not be a transitional employer. And, says Kelly Cardwell, director, rewards and HRIS, with Best Buy, target date funds will likely play a role in their investment line-up as well. “[Pensions] are a major concern for us…one of the things we’ve been looking at are the investment choices we offer employees and [we] are looking at target date funds,” she says.

Communication and balance
Most plan sponsors of medium and large-scale DC plans likely have several communication tools either they, or with the help of their provider, supply to plan members. Best Buy’s Cardwell says a big push this year will be around communication. And because of its young workforce it is looking at unique and different ways such as social media to assist plan members. Lunch and learns and a focus on total reward statements, which emphasize the retirement plan, are all part of a broader communication strategy.

John McAteer, manager, savings and benefits plans Canada, with Direct Energy says his company helps members with transition issues by meeting regularly with its DC provider to analyze tools, promote material through internal communication and address issues of web traffic and how online tools are being used. Coupled with that are the target date funds and six outside funds it offers to employees in order to enhance their investment selection.

HBC works closely with field HR representatives to stay aware of upcoming retirements and work with their recordkeeper to get that member their retirement income options and ultimately ease the move from full-time work to retirement.

Lynmar & Associates’ Lurz says, however, that the balance within communications has been lacking. “Employers are not taking as proactive a role as they should be in driving what’s put in front of their members,” she adds. In other words, while communication is being offered and even some financial planning is a part of that, sponsors are not insisting on a variety of communications with regard to managing longevity risk and the need for members to protect themselves once they retire.

Tools (online calculators, booklets, in-person sessions, etc.), communications and balanced communications are all important parts of the retirement arsenal. And while Cote says providers are making good progress in helping with the penetration of these tools, they are only successful if they are being used. He says putting retirement projections at the beginning of statements, personalizing messages to members and custom emails all help bring up the “take up rate” and engagement by members.

When all is said and done, both plan sponsors and members have a responsibility to communicate with one another about goals, needs and what retirement should look like on an individual level. Without that two-way communication, the messages may be falling on deaf ears.

Joel Kranc is a freelance writer in Toronto.

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