Getting employees engaged in financial literacy can put the benefit back into pension plans

It’s been six years since the financial crisis caught the Canadian financial industry off-guard. During this period, countless surveys conducted by financial groups and independent analysts have been coming to the same two conclusions. One, Canadians don’t trust the industry as much as they once did. Two, regardless of this lack of trust, most Canadians don’t have a financial plan, which points to a lack of financial literacy. Some survey respondents have even admitted that they are intimidated by financial advisors and are reluctant to talk about financial matters—even with family—and that, in general, money makes them anxious.

As a result of these discoveries, the financial industry has been scrambling to make financial education cool again. It has simplified the money conversation by returning to plain language, inventing fun tools and calculators, and launching consumer-friendly products in an effort to reignite the public’s interest.

The Canadian pension industry has long been ahead of this curve. Before the advent of the DC plan, the DB plan made employee financial literacy moot, since the employer was liable for the pension benefit payments and the associated investment risk. Employees simply had to go to work; the rest was managed on their behalf. But over the years, it became increasingly clear that DB plans were expensive and lacked flexibility because they were designed for long-term employees; DB benefits weren’t easily portable when employees changed jobs; and fluctuating annual costs and employer contributions made them more difficult to manage.

Paradigm Shift
When the industry later shifted toward DC plans, the process proved daunting for plan sponsors and employees alike. Employees had to adjust to new roles and responsibilities—in short, they had to become more financially literate. And while DC plans reduced employers’ liabilities, they also made employers responsible for ensuring that employees have sufficient information to make informed investment choices.

With the demise of the one-size-fits-all pension plan, employees are now required to take an active role in their own retirement planning. This means that they have to understand the concept of investment asset mix and their own risk tolerance, as well as the impact of regular contributions and the value of saving over time.

While the DC arrangement is more hands-on for participants, members need to understand from the beginning that, although the decisions are theirs alone, they’re not actually on their own throughout the entire process. For example, they should receive the following:

  • easy-to-use investment information and decision-making support;
  • information to reinforce key messages at different life stages (e.g., getting married, starting a family, buying a home); and
  • continuous and easy-to-understand plan information delivered through different channels such as social media, mobile apps, individual or group meetings, call centres, a plan website and periodic mailings (including newsletters and account statements).

Companies should make the plan set-up process as simple as possible and demonstrate to employees the benefits of being the driver of their own financial future. When employers clearly define the options, employees can make informed decisions. Desjardins research shows that when plan members answer that call to action, they become more engaged with their retirement plan. And when they’re engaged, communication between them and the plan sponsor improves, and a greater level of trust develops between the members and the sponsor.

Changing Channels
Broaching the topic of financial literacy with plan sponsors and members alike elicits the same emotional reaction as having a root canal: pure dread. When it comes to financial matters, many employees are afraid, overwhelmed, anxious and unmotivated. They’re also resistant to change and to learning a new skill that might be completely out of their area of expertise or interest.

The good news is that the plan sponsor can help make the experience less uncomfortable. Although most providers offer annual retirement planning education sessions, they are often not enough to keep the momentum going. Keep in mind what media gurus say: people need to hear a message up to 10 times or more before it sinks in. So take a page out of the advertising book and run your education program like an ad campaign.

First, set a goal for your education program (i.e., what do you want participants to know or what action do they need to take?). Then measure the results—or key performance indicators— of that goal. Once you have this information, you’ll know how to position the next phase of your program.

Today, people have shorter attention spans. They use their PVRs to skip through TV ads; during their commutes, they’re too busy looking at their smart phones to notice bus or subway ads. So you have to meet them on their preferred media platform. Do this by repeatedly transmitting and reinforcing your message through multiple touchpoints or different kinds of media, such as the company intranet and posters at company events or in public areas (e.g., the employee lunchroom).

Another option is to create a Facebook group for all participants. Similar to the ad concept of pushing out the advertising message to pull in consumer interest and information, posting hard messages (posts that deal with more specific and concrete information related to retirement planning, such as the value of compounding or explanations of any new legislative changes that may affect retirement) and soft messages (posts that consist of conversations or comments about local events and topics that are in the news) will incite real-time online conversations. And you’ll be able to use this highly valuable information to measure, adjust and evolve your program to anticipate participants’ needs.

But no matter what medium you use to deliver the information, follow the best practices of TV commercials, Internet ads or magazine ads: messages should be short and pithy. This strategy is particularly effective because the workforce has become so diverse in terms of age, experience, communication preferences and interests, and everyone has different learning styles. As opposed to merely reading, people learn by touching, seeing, doing, hearing or a combination of all of these elements. Thanks to social media, webinars, YouTube and online retirement simulators that help plan members determine how much they should be saving each month to reach their retirement goals, there is now a real-time interactive conversation between members, sponsors and providers.

It’s also important that participants see that the plan has the full support of senior managers. Create some internal peer pressure by having the CEO cajole participants into looking at their accounts—because the CEO looks at his or hers. This will eventually have a ripple effect across the entire group. There’s value in creating a jump-on-the-bandwagon approach to retirement planning: if everyone around you is doing it, you don’t want to be the one left out.

And messages don’t always have to be about the company retirement plan. Tips for reducing credit card debt, developing smart savings habits or saving on home heating, for example, will keep the broader financial education message alive.

The Next Generation
Governments at all levels can play an active role in promoting financial education, because it has become a mainstream issue that supersedes any perceived lack of political will.

Although boomers may feel as if they’ve missed the boat when it comes to saving for retirement, younger employees may be more proactive and open to learning about managing their money more efficiently. In fact, the industry needs to focus on the generation that’s not even in the workforce yet, since saving and spending habits cultivated in childhood are more likely to continue into adulthood.

Similar to the education programs that have been ongoing for decades in Quebec, financial literacy can be implemented at all school levels—from kindergarten to Grade 12. Lessons could include how to create a budget, set up a savings plan and calculate simple interest, as well as information about compounding, mortgages, debt, life insurance—and, of course, retirement planning.

The financial literacy issue is everywhere: everyone knows it’s important and that a plan needs to be put into action. While governments will clearly have a role to play in the future, DC plan sponsors are uniquely positioned to support employees now in taking those first key steps.

5 Tips to Make DC Plans Easier for Employees

  1. Help employees understand the investment options available.
  2. Avoid overwhelming them with too many fund options.
  3. Inform employees that if they don’t make a choice, their contributions will be invested in a default option.
  4. Keep it simple by selecting a diverse range of quality funds and pre-selected portfolios in which funds are carefully researched and monitored.
  5. Know how to effectively monitor fund performance and raise flags when necessary.

Karrina Dusablon is national director, education and training, group retirement savings, with Desjardins Insurance.

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

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