Transitioning to retirement: The DB perspective

As the first set of baby boomers starting to retire in 2011, retirement questions about their pension, their working status, what to do next, etc., will become front and centre for sponsors of DB plans.

“We’re certainly seeing the impact of the baby boom generation at OMERS,” says Ian Kinross, director, pension communications and education with the Ontario Municipal Employees Retirement System (OMERS). The $53 billion, 400,000-member pension fund, which serves around 900 employer groups across the province is preparing for the wave of employees who will be moving into retirement over the next few years.

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In fact, Kinross says that OMERS’ call centre has had close to a 20% increase in inquiries over the past year with pension estimate questions being one of the top five calls they are receiving from members.

Many approaches, same goal
So what are the ways in which DB plan sponsors are preparing their members for the inevitable transition to retirement, and what impact is it having on employee awareness?

No two plans are alike, nor are their members, says Cindy Rynne, principal and consulting actuary with Buck Consultants in Toronto. “Programs provided by plan sponsors are by no means standardized, and it really varies by company…but generally speaking, the larger the plan, the more formal the education and training program around it.”

Rynne says many of her clients provide formal education and training either on a group or individual basis to answer member questions. “These sessions not only serve as educational to the members, but can also provide disclosure above the minimum required by pension regulation,” she adds.

While member booklets and annual statements are documents that plan sponsors are required to be provided to members, they can also act as training tools to be reviewed during the education sessions.

OMERS’ call centre has had close to a 20% increase in inquiries over the past year with pension estimate questions being one of the top five calls they are receiving from members.

Suzanne Menard, senior consultant with Aon Hewitt in Montreal says there are, of course, the traditional elements of retirement education but more recently plan sponsors are looking at new elements.

She says tax and financial implications, transition and lifestyle planning as well as legal and estate planning are becoming more popular topics for plan sponsors to provide educational tools around.

Many companies use a ‘12-hour approach,’ explains Menard. Typically these are four education sessions of three hours each, which allow employees to attend all or a variety of seminars in order to better understand their needs upon retirement.
A tricky aspect of helping employees prepare for this retirement transition is knowing when they are actually going to retire. This isn’t something all employees will necessarily want their employer to know.

Rynne says it is a fine line and in most cases, the employee needs to be on the ball to initiate help with transition issues and employers need to be ready to respond.

Getting the message out
In OMERS’ case, the need to get the message out to their members is increasing. In 2010, 57% of its members were aged 45 or older. “We are mobilizing to meet those demands,” stresses Kinross.

Case in point is the upgrade the fund did to its online estimator that helps plan members look at their retirement income.

An accurate estimate is only as good as the information put in by the plan members themselves, so after numerous member requests, OMERS changed the tool on its MyOMERS online system to use auto-generated member data to give estimates for multiple retirement milestones.

Additionally, notes Kinross, employers should try to provide information to employees on the other two pillars of retirement—personal savings and federal programs—as well. However, this needs to come long before employees are considering their retirement date.

At OMERS, to help members maximize retirement income outside the traditional DB plan there is an additional voluntary contributions plan. Essentially, it acts as a group savings vehicle outside the primary pension plan—again something that arose from member requests as they neared retirement.

OMERS also reaches out to members throughout the province on a face-to-face basis. Kinross says, prior to 2009 approximately 10,000 to 15,000 members per year attended information sessions or had retirement sessions. In 2009, that number grew to 15,000 to 20,000 and in 2010 OMERS met with more than 20,000 members.

Emotional aspects of retirement
While face-to-face outreach certainly helps plan members with what can be a tough transition, Rynne says plan sponsors are not really doing too much to help with the ‘emotional’ aspects of retirement.

She notes that employee assistance programs and even phased-in retirement are two areas that make it somewhat easier for members to ease into retirement. In other words, programs that allow plan members to emotionally prepare for retirement, either by talking their issues through or easing the retirement phase by not doing it one fell sweep, provides them with lead time to address their retirement concerns in a way that will suit their needs when the time arrives.

Menard says that she finds it beneficial for employees to understand what their motivations for retirement are while they are planning.

“If they do not have hopes and dreams and do not know what they want to do, they are not ready for retirement,” she says. Menard works with clients and helps them understand there are right and wrong reasons for retiring. Clients are given tools to help them prepare and identify what they will do with the extra 2,000 hours per year they are about to add to their schedules.

While having proper communication and estimation tools is a bonus when aiding plan members with their retirement plan, the downside of most of these tools, Rynne points out, is that most help plan members understand what ultimate benefit they will actually receive from the pension plan, not what they might need.

Ultimately, while members need to take responsibility for their retirement income, whether they are provided with a guaranteed DB plan or a DC plan, members and plan sponsors must work together to attain secure and successful retirement goals.

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