While a majority of plan members participate in their voluntary group retirement plans, a large minority of members are forfeiting the employer contribution altogether.
What are the main reasons members aren’t participating, and what can you do to help?
A Canadian Payroll Association survey finds 51% of employees would find it difficult to meet their financial obligations if their paycheque were delayed by a single week. That’s up from an average of 49% over the past three years. Employees also expect to retire later than originally planned. The top reason why is due to lack of sufficient savings.
Although it’s difficult for these employees to put money aside, it’s still possible. Group RRSPs can reduce the after-tax cost of payroll deductions by reducing taxes at the source. The net amount contributed is not as painful as if employees contributed at a local financial institution.
Employer encouragement for raises and bonuses to be deposited into group RRSP accounts can decrease the pain employees feel of reducing their paycheque. Bonuses can go into group RRSPs with no tax deducted from the bonus, whereas, if employees take their bonus in cash, it’s at their highest marginal rate. If employees receive a 2% raise, they may want to consider putting that amount into the group RRSP before they are used to spending the increase in pay.
Unsure about investments
Many employees are uneducated in financial markets and feel unsure about investing. If employees are unsure about what investment decisions to make, in many cases, they will make no decision at all.
The opportunity to learn about investment options at time of enrollment in the group RRSP can boost membership. Many of the pension providers (insurance and mutual fund companies) have a toll-free number for help over the phone or offer online assistance. Many consultants offer face-to-face or group education sessions for new members. In my experience, the top two questions that come in from members are, Am I in the right investment? and Am I saving enough? If these questions can be answered for new employees at time of enrollment, it’s likely there will be more members joining the plan.
If plan members aren’t taking part in your workplace plan(s), how can you encourage additional participation?
Implementing mandatory enrollment can be helpful. Some companies are making participation in their retirement plan a condition of employment as they do with their group benefits plan. It’s a paternalistic way of getting employees to save, but it has been successful for some businesses. Some employers are reluctant to implement mandatory enrollment due to the perception that employer contributions should be matched or matched at a higher ratio.
Ongoing education can also help the enrollment numbers increase in a group plan. Continuing to explain to employees that employer contributions are “free money” is very powerful and eventually will sink in. Demonstrating the benefits of a little extra savings becoming a large amount of money over your work life is also very powerful.
Although there are barriers for many average Canadians when considering whether to join their group retirement plans, there are some successful ways for companies to encourage these employees to switch from a here-and-now attitude to a long-term saving perspective.