The efforts of many Canadian plan sponsors are being devoted to risk exposure, employee communication and education around retirement income adequacy, a recent survey reveals.
Hewitt Associates’ Canadian Retirement Trends 2009 survey of 196 organizations finds that two-thirds of capital accumulation plan (CAP) sponsors are likely to conduct a comprehensive review of their investment fund offerings, while half of defined benefit (DB) plan sponsors are very likely to perform funding and accounting projections, and 41% are very likely to assess risks (financial and non-financial) based on current strategies.
“Regardless of whether they sponsor DB pension plans or CAPs, 59% of employers are somewhat or very likely to assess the appropriateness of their retirement program’s design this year,” says Andrew Hamilton, a senior retirement consultant with Hewitt in Toronto. “While that doesn’t necessarily mean that they’re going to change the design, we are seeing renewed interest from some DB plan sponsors in considering a transition to a DC plan.”
The goal, he explains, is to ensure that employer-sponsored retirement programs are finding a balance between risk and return for employees.
Employee responsibility
Communications efforts are on the rise in order to help employees understand the need to save for retirement, and how the company plan can assist. More than 40% of employers are confident that their programs enable employees to retire with sufficient retirement assets—at least on paper.
“Saving for retirement doesn’t become a concern for many employees until they hit age 45 or 50,” says Dianne Tamburro, a senior investment consultant in Hewitt’s Toronto office. “By then, it may be too late to build up an adequate nest egg to retire comfortably, even with other sources of savings.” She explains that a high priority for 42% of employers is ensuring that employees understand that they need to be responsible for their own future.
Investment decisions
The thorny issue of helping employees make appropriate investment decisions is dealt with by CAP sponsors by using multiple methods, the most prevalent forms being online investment guidance (54%), phone access to investment advisory services (49%) and in-person financial education seminars (47%).
“It’s not surprising that these resources have the highest utilization, as some of these services are available through the plan’s recordkeeper and included in their fees,” says Tamburro. “Fewer employers offer online (36%) or in-person advisory services (24%), primarily due to the additional fees or potential liability associated with these services.”
The survey also found that 45% of employers surveyed provide target risk/lifestyle funds (funds with a static asset mix of equities and fixed income that range from conservative to aggressive) and 28% offer target date/lifecycle funds (funds with a dynamic asset mix of equities and fixed income that shift to more conservative investments as the maturity/retirement date approaches).
“Considering that target date funds were only launched in Canada less than five years ago, the relatively high percentage of plans offering these funds is noteworthy,” says Tamburro. “Their prevalence is largely due to the popularity of the product in the U.S.”
Further, the number of employers offering retiree medical and dental coverage is declining. “Sixty percent of employers currently offer post-retirement healthcare benefits,” says Hamilton. “However, one-third expect to reduce coverage for future retirees and 43% may look to retirees to share more of the cost of these benefits. This means that employees have even more reason to save as they may have to foot some or all of the bill for healthcare expenses not covered under provincial plans.”
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