Are retirement saving plans secure?
Retirement saving plans have been making news headlines for a variety of reasons. One of those includes the security of pension plans when an employer runs into financial problems or is sold. Take for example the situation for workers at Sears Canada and Northstar Aerospace who may face a 19-24% reduction in pension benefits due to insolvency and layoffs. For all the details read more here.
Defined benefit and target benefit plans
Sears Canada has a defined benefit plan and Northstar Aerospace has a target benefit plan. Both of these types of plans place the responsibility of investment management on the employer. And, although this can be beneficial from an administration and investment-cost perspective, it can also prove detrimental. This is especially true if the investment returns are insufficient to fund the plan appropriately. If the employer can’t make up the shortfall, the employees are potentially getting less than they budgeted for in their retirement years. Unlike a defined benefit plan where an employer promises a certain level of retirement benefit, a target benefit plan permits the employer to reduce the benefit should there be a funding shortfall.
The move is on…employers are choosing defined contribution plans
Over the past decade, employers have moved away from defined benefit and target benefit plans to avoid these types of issues. However, even defined contribution retirement plans, the popular choice of most employers in Canada, have their challenges. But, it is perhaps not what you might think? The key challenge for employers is getting their employees engaged in making their own investment decisions and adequately planning for their future.
With 46% of working Canadians planning to work longer due to inadequate retirement savings (according to a new survey by the Canadian Payroll Association), employers need better tools to engage employees. Here are a few of our suggestions to better engage employees and help them achieve retirement readiness.
Engaging employees in defined contribution plans (RPP, Group RRSP, or DPSPs)
1. Build a suitable investment fund menu that is sufficient but not overwhelming.
2. Ensure employees review their investments on a regular basis with a qualified advisor…hopefully the same advisor year over year.
3. Education, education, and more education. Tailored and customized education for group meetings, with one-on-one investment and retirement advising, offered free of charge either on-site or over-the-phone.
One-on-one advising keeps retirement plans on track and futures bright
In addition to group-based education and meetings, one-on-one advising is the equivalent to a regular check-up with a doctor. For a lot of people, our advising sessions may be the first time they’re seeing if they are on track for a dream retirement or how far off course they might be. For the more mature employee or the more sophisticated investor, one-on-one advising can assist with their understanding of some of the more complex aspects of investing and the online retirement planning tools available to assist them in their selection of investments.
Let us review your retirement education plan and recommend a strategy and custom-designed program to ensure your plan members are retirement ready.