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Putting Putting


a face on CAP


                         4     Keeping it real: Expectations
                               about retirement
                               Canadian CAP members admit
                               their understanding about
                               retirement plans is lacking, but
                               they have a good handle on how
                               much of their pay is needed for
                               retirement income.

                         6     Building engagement:
                               Perceptions of a CAP
                               Employees that are satisfied in
                               their plans are also satisfied in
                               their jobs. But with employees
                               not having a strong grasp of their
                               pension plan, it’s left up to plan
                               sponsors to bridge the gap.

                         9     Investments: Knowledge and
                               behaviour                              The Advisory Board
                               Do plan members have the right
                               mix of information and knowl-
                               edge to plan for their retirement?
                               They may, but they seem to
                               acknowledge that they are lacking
                               in understanding and general
                               investment know-how.

                         13 Plan members: Their role
                               Employees feel they have a
                               responsibility to take care of their
                               retirement money but they also
                               expect their employer to make the
                               best investment choices for them.

                         14 Plan sponsors: Their role
                               Members have high expectations
                               of their employers. They expect
                               education, advice and want the
                               company to step in where they
                               themselves are lacking in

Welcome to our Special Report on
Capital Accumulation Plan members.
M      ore than four million working Canadians belong to
       capital accumulation plans (CAPs). That translates into
more than four million different sets of expectations about
                                                                                  perceptions of their CAP plan? And what is the driver of their
                                                                                  retirement savings and investment behaviour?
                                                                                      To give you a better view into the minds of plan members,
retirement, four million opinions about what’s needed to                          the Rogers Business and Professional Publishing Research
achieve those expectations, and probably close to four million                    Team, on behalf of BENEFITS CANADA, recently asked more
misconceptions about what a CAP is for and how much retire-                       than 1,500 employees these and other questions. We are
ment income it will provide. That’s not to mention the unique                     pleased to present the results of this unique and comprehen-
savings habits and investment behaviours that each of the four                    sive survey in the pages of this special report.
million plan members brings to the equation.                                          Numbers are one thing. Making sense of them is quite
    Therein lies the challenge for employers who offer these                      another. To decipher the survey results, we recently brought
types of plans. They must provide a diverse array of plan                         together a mix of industry stakeholders—plan sponsors,
members with the information, education and investment choic-                     recordkeepers, consultants, legal experts and others—to put
es they need to make decisions that will help ensure a comfort-                   some context behind the findings. This special report
able retirement income and lifestyle. More challenging is the task                includes the highlights of that discussion. More importantly,
of engaging these members—many of whom have just started                          it includes the group’s thoughts on how plan sponsors
their careers—in the process of saving for their retirement.                      should act on the results.
    But how do you engage people who are so varied in their                           I hope this report provides you with a greater level of
perceptions and habits, and who often seem so indifferent to                      understanding about plan members’ expectations for retirement
their own financial futures? The first step is to understand                      and how you can help them get there. Four million plan
them. What do they expect from retirement? What are their                         members may be counting on it.                        Don Bisch
                                                                                                                          editor, Benefits Canada

                                                                                                                         Chapters 1 & 2 of this
                                                                                                                         report were written by
                                                                                                                         Alison MacAlpine. Chapters
                                                                                                                         3-5 were written by Andrea
                                                                                                                         Davis. Both are freelance
                                                                                                                         writers in Toronto.

Standing back row left to right: Daniel Audet, Teresa Morgan, Jeff Horbal, Bill Sipes, Dave McLellan, Alain Malaket,
Paul Litner, Hugh O’Reilly, Christine Andrews, Michael Campbell, Vince Rinella, Jean-Daniel Côté and Anna Del Balso on
far right. Seated from left: Angelo Pugliese, Stephen Lewis, Jeff Aarssen, Colin Ripsman, Bruce Winch, Janet Rabovsky,
Susan Hunt, Lori Bak and Olga Knight. Seated on table is Larry Ketchabaw. Seated on chair to the right: back is
Jan Neiman, middle is Dianne Lee and front, on arm of chair is Michelle Chusan.

                                                                                 NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS                    R3
                                    1: Keeping it real:
                                    Expectations about retirement
                                     W      hen it comes to retirement, Canadian
                                            workers are aiming for ‘Freedom 60.’
                                    That’s the average age at which the employ-
                                                                                           need to contribute to their plan to achieve
                                                                                           the retirement income they’ll need.
                                                                                                 Only one in three (33%) say they have an
                                    ees interviewed for BENEFITS CANADA’s first            excellent or very good understanding of this
                                    Survey of Capital Accumulation Plan (CAP)              number, while the majority (63%) say they
                                    Members intend to retire. A total of 1,513             have a somewhat good or lower level of
                                    Canadian employees with access to defined              understanding.
                                    contribution (DC) pension plans and group                    Similarly, when respondents were asked if
                                    registered retirement savings plans (GRRSPs)           they know the total amount of money they
                                    were interviewed for the survey. Of those,             will need to retire, nearly two-thirds (65%)
                                    1,122 actually participate in the DC and               said “no.” The numbers are a bit better if
                                    GRRSPs offered to them, and 972 are cur-               you break them down by age, but still just
“The primary way that               rently working. The survey was conducted               39% of respondents 55 and older know how
                                    between Aug. 8 and Sept. 10, 2006 and has              much they’ll need to retire—compared to
employees are going to be
                                    a margin of error plus or minus 2.9%, 19               32% of respondents aged 35 to 55 and 18%
evaluating the plan is                                                                     of respondents aged 18 to 34.
                                    times out of 20.
based on the standard of                While Canadian employees seem to have                  Meanwhile, nearly two thirds (63%) of
living that it provides in          specific goals for their retirement age, they          respondents don’t know the amount of
retirement.”                        are less certain about how much they’ll                money their employee retirement plan(s) will
                                    need to achieve those goals. Few respon-               pay out when they retire.
Colin Ripsman,
Canadian head of DC consulting,     dents believe they have an excellent or very               On a more positive note, plan members
Mercer Investment Consulting        good understanding of how much they                    who are currently working seem to be fair-
in Toronto
                                                                                                               ly realistic about the per-
                                                                                                               centage (73%) of their
                                                                                                               current salary they will
If you could choose, at the time of your retirement, would you personally                                      need at retirement. The
prefer to receive a one-time payout or a monthly income retirement?                                            priority for most (72%) is
                                                                                  Monthly income               having enough money in
                                                                                  One-time payout              their plan to retire as soon
                                                                                  (Plan members who are        as possible.
                    69%             69%                                           currently working)
                                                                                                                  Overall, respondents to
                                                                                                               the Survey of CAP Members
                                                                61%           62%
     60%                                                                                        60%            believe they will receive
                                                                                                               about 39% of their income
                                                                                                               from their employer’s
                                                                                                               retirement plan, 31% from
                                                                                                               the government, 34% from
                                                                                                               their personal savings and
                                              37%                           37%
                                                              34%                                              the rest from other sources.
 30%                                                                                                              Also of concern is the
                 29%              29%                                                                          fact that approximately
                                                                                                               one-third of respondents
                                                                                                               weren’t able to answer the
                                                                                                               questions about the expect-
                                                                                                               ed breakdown of their
                                                                                                               retirement income because
                                                                                                               they simply don’t know
  Overall        Less than        $30,000      $40,000        $50,000       $60,000         More than          what proportion will come
                  $30,000           to           to             to            to             $70,000
                                  $40,000      $50,000        $60,000       $70,000                            from employer, govern-
                                                                                                               ment, personal savings and
                                            Personal Income
                                                                                                               other sources.

Misplaced confidence?                             much to contribute, how to calculate what is
                                                  needed in retirement and what to do with a
So, are Canadians’ expectations about their       lump sum accumulated at retirement. This
retirement age misplaced? Our panelists agree     approach, he says, must change.
that plan members are less prepared than they         Furthermore, it’s not enough to just
should be for retirement.                         provide the right tools, suggests Susan Hunt,
    As Dave McLellan, vice-president of           director of marketing, group retirement
defined contribution solutions with Fidelity      services at Sun Life Financial in Toronto.
Investments in Toronto says, “There’s a           She thinks plan sponsors should be spending
good element of common sense out there            time hands-on with members establishing a
                                                  plan and actually using the tools that are
                                                                                                       “They expect that
among plan members, but I think these
                                                  available to them.                                   somebody’s going to take
results uncover an element that we need to
understand about plan members, and that               That said, several panelists emphasize           care of them. We have to
is their ability to understand themselves         that employees must take responsibility for          have a quantum shift to
and assess themselves.” He draws an analo-        their own retirement savings. “Because of            get members to take
gy to his two children, aged nine and 10,         the DB mentality, people still think—and
who will say “yes” when asked if they’re          the findings still indicate—that 64% of
                                                  retirement income is going to come from              Teresa Morgan,
ready for bed— but “no” if he probes fur-                                                              national director, member
ther and inquires if they’ve brushed their        their employer program and the govern-               services, Standard Life
                                                  ment,” says Morgan. “They expect that                in Montreal
teeth. His conclusion: “When you ask them
a general question about their understand-        somebody’s going to take care of them. We
ing or ability to understand, I think you’ll      have to have a quantum shift to get mem-
get a somewhat different answer than              bers to take ownership.”
‘Have you done the math?’”                            Jean-Daniel Côté, a national leader of the
    If plan members don’t know what they          DC consulting practice and a principal with
need, but still think they’ll get there, Jan      Morneau Sobeco in Montreal, echoes that
Neiman, manager of pension and benefits at        thought: “There’s still that paternalistic view
Ryerson University in Toronto suggests plan       that the sponsor is putting the plan in place,
sponsors have a lot of work to do. They           so it’s supposed to provide for retirement.
should focus on helping people understand         Again, we’re coming back
what they must, in fact, accumulate.              to plan purpose and do we
    Olga Knight, senior pension consultant        communicate that ade-             PENSION PLACEMENT
with Cowan Wright Beauchamp in Waterloo,          quately, and is it very clear
                                                  that it’s just to help you        Where will your retirement income come from?
adds that employees need a realistic picture
of retirement, which may include continuing       with retirement and not to
to work in some capacity. She says that if        provide you with complete
plan members are provided with education          retirement income?”
and assistance, they will learn to take respon-       Part of the solution
sibility for their retirement income.             may be for plan sponsors
    Plan sponsors have an opportunity to          to set clearer expectations
                                                                                            34%                41%
translate data into actionable information so     concerning the role of the
plan members can get a clear sense of             plan and the percentage of
whether their contributions are sufficient to     retirement income needs it
reach their goals, suggests Stephen Lewis,        will take care of, says
senior consultant with Towers Perrin in           Hunt. She points out that
Toronto. Part of that process will likely         employees may be overly
involve going back to the basics, explaining      optimistic if they anticipate
to members that contributions, time and           that their employer plan
investments make the difference, says Teresa      will cover 40% of their                     Mean (plan members)
Morgan, national director, member services        retirement income needs
with Standard Life in Montreal.                   when they are not fully
                                                                                        Retirement plan(s) through your employer
    Colin Ripsman, Canadian head of DC con-       participating in the plan.
sulting with Mercer Investment Consulting in          Janet Rabovsky, senior
                                                                                        Personal savings
Toronto, adds that, in the past, plan commu-      investment consultant at
nications have focused on asset mix, with less    Watson Wyatt in Toronto,
emphasis placed on how to use the plan, how       adds that sponsors tend to

                                                                 NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS               R5
                                      establish plans based on what’s common in           when employees are keeping score. I think
                                      the industry, not the end results, and this         that represents a big risk for plan sponsors.
                                      may be a problem in the future. After all, as       From a legal liability standpoint, you have
                                      McLellan points out, there’s often an               to work over the course of the employee’s
                                      assumption among both sponsors and mem-             employment tenure to manage those expec-
                                      bers that the plan’s formula is right. But          tations and make sure that they have an
                                      what if it isn’t?                                   understanding of what that number is going
                                          “The primary way that employees are             to look like and what it means at the end of
                                      going to be evaluating the plan is based on         the day—or that’s where you’re hitting your
                                      the standard of living that it provides in          biggest exposure.”
                                      retirement,” Ripsman warns. “That’s how
                                      employees are keeping score and that’s
                                                                                                      ACTION STEPS
                                                                                           • Communicate realistic expectations about
                MONEY NOW OR MONEY LATER?                                                    the plan’s contribution to members’ retire-
 When plan members who are currently working were asked if they would prefer                 ment income.
 a one-time payout or monthly income at retirement, their responses generally
                                                                                           • Educate members about their own responsi-
 correlated to their current salary. At higher income levels, plan members were
                                                                                             bility for accumulating other savings and the
 more attracted to the idea of a lump sum (see “Show me the money,” page 4).
                                                                                             importance of contributions and time to
     “Similar research in the U.S. would have different results,” says McLellan.
                                                                                             achieve the end result they want.
 “Americans, for whatever reason, seem to be more comfortable embracing risk
 than Canadians. It probably speaks to the fact that the DC market is more                 • Design plans based on members’ retirement
 mature, and also such behaviour lines up with their culture.”                               income needs instead of industry norms.

                                      2: Building engagement:
                                      Perceptions of the CAP plan
                                      P     lan members are relatively content.
                                            Most say they are very or somewhat
                                      satisfied with their current job (89%), employee
                                                                                              Despite these positive feelings about their
                                                                                          CAPs and the employers who offer them, the
                                                                                          majority of members don’t have a strong grasp
                                      retirement plans (84%) and investment               of their plan or what it can do for them. Just
                                      performance within those plans (83%). Seven         37% say they have an excellent or very good
“What we see as a first               in 10 plan members (71%) are very or some-          understanding of their plan. Similarly, only 28%
step here, is not so much             what confident that their plans will provide        of employees who don’t participate in their plan
teaching them about                   the amount of money they need to meet their         say they have an excellent or very good under-
specific investment features,         financial objectives for those plans.               standing of their plan. In addition, nearly three
                                          When asked about the importance of the          in ten members who are currently working are
but rather showing there
                                      various features of the plans, the majority (79%)   vague about their specific goals for the plan,
are elements they may not                                                                 with 16% saying they don’t know what their
                                      indicated portability is important. Seventy-three
be leveraging.”                       per cent place importance on investment choice      objectives are and a further 12% saying they
Lori Bak,                             while 76% say transparency—defined by being         have no objectives. The most popular objec-
vice-president,                       able to understand and easily choose their own      tives among members are to be able to retire
client relationships and marketing,
Sun Life Financial in Toronto         investments is important.                           with an adequate income (20%) or comfortably
                                          Having a CAP also seems to raise                (13%) and to make as much as possible (13%).
                                      employees’ perception of their employers.               Significantly, although 74% of working
                                      Most working plan members (77%) report              members are confident they have all the
                                      that their plan and other benefits make them        information they need to make the best
                                      think of their employer more positively. Also       investment decisions in their retirement plan,
                                      plan sponsors are gaining traction with a           only 27% of those feel “very confident.”
                                      majority of members (56%) saying they would         However, few are using the materials at their
                                      be reluctant to leave their employer because of     disposal. Only 32% are using employer-
                                      their plan and other benefits.                      provided tools. While thirty per cent are

using information, 23% are using financial          group savings and retirement with Standard
advisors to make investment decisions. Just         Life in Montreal. “What that tells me is that
22% have attended education sessions about          we’ve done a pretty good job in educating
their plan. On a more reassuring note 65%           about investment alternatives and financial
have reviewed the investments they hold,            planning, but not necessarily retirement plan-
while 61% have reviewed all their retirement        ning or what the plan has to offer.”
investment statements.                                  Rabovsky agrees, pointing to the fact that
    Nevertheless, working plan members are          people appear to be choosing investment
expecting results. Most (57%) are much more         options without knowing where they are
concerned about the cold, hard total dollar         headed. “People are reading their statements,
value of their employee plan than its perform-      they’re looking at their funds, but they’re not
                                                                                                           “Just as with a defined
ance relative to an industry index—which is a       making a plan,” she says. “Just as with a              benefit plan, you need to
priority for just 34% of working plan members.      defined benefit plan, you need to stand back           stand back and figure
                                                    and figure out what you need to achieve and            out what you need to
Bridge the disconnect                               then pick your investments based on that—              achieve and then pick
                                                    and they’re clearly not doing that.”
                                                                                                           your investments based on
For plan sponsors who have invested signifi-            Shifting the focus of investment education
cantly in communicating to their plan mem-          towards contributions, time and investments
                                                                                                           that—and they’re clearly
bers, the survey results may be frustrating,        will be important, suggests Michael Campbell,          not doing that.”
says Bill Sipes, marketing director, group sav-     vice-president, marketing with Group
                                                                                                           Janet Rabovsky,
ings and retirement solutions at Manulife           Retirement Services in London, Ont. And, he            senior investment consultant,
Financial in Waterloo. “There’s a lot of time       says, there should be a greater emphasis on            Watson Wyatt in Toronto
and effort put into rolling out a plan,” he         contributions and time. But education must
points out, “and if only 35% of respondents         also percolate throughout an organization. To
have an excellent or very good understanding        ensure the right information filters down to
of it, there’s got to be a real opportunity there   employees, Campbell says plan sponsors need to
for sponsors to promote their plan and get          make sure human resources and benefits staff
their employees’ general understanding and          understand plan design mechanics and concepts
appreciation of the benefit that’s in place up.”    such as replacement ratios so they can commu-
    Lori Bak, vice-president, client relation-      nicate to members and manage expectations.
ships and marketing with Sun Life Financial             “Education and communication is great,”
in Toronto, suggests there’s a danger that if       Rabovsky acknowledges, “but I still think
members don’t have a solid understanding of         there are a number of people who need to be
their plan they may not be taking full advan-       saved from themselves, and certainly solutions
tage of features such as employer matching          rather than individual choice might be some-
and voluntary contributions. “What we see as        thing that more sponsors
a first step here,” she says, “is not so much       want to consider.”
                                                                                    TAKING CARE OF BUSINESS
teaching them about specific investment fea-            Campbell proposes
tures, but rather showing plan members there        adding to the mix               Within the past year, have you done any of
are elements they may not be leveraging.”           concepts such as auto-          the following with your retirement plan?
    That said, she emphasizes that plan             enrolment, auto-
sponsors may need to ask members how                escalation of contribu-
they want to learn—since they aren’t, by and        tions and a strong default
large, availing themselves of employer-             fund policy. After all, he
provided education sessions. She suggests           says, employees don’t get
that employers may need to consider manda-          to decide whether or not
tory meetings and mandatory risk profiles           they join a benefit plan,
before money in a plan is invested. Daniel          so why do they get to
Audet, principal with Mercer Investment             decide whether or not
Consulting in Calgary suggests that targeted,       the retirement policy of
simpler, more relevant information needs to         their employer is going
be distributed to plan members.                     to work? And, he argues,
    “There seems to be a disconnect between         the tools are already in
the members’ satisfaction with their plan and       plan sponsors’ hands in
their knowledge of their plan,” says Anna Del       the form of DC plans.
Balso, senior manager, strategy and research,           “You could make a                                                       Plan members

                                                                    NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS                       R7
                                    mandatory enrollment defined contribution            lored to the DC industry that aim to deliver a
                                    pension plan with a set level of contributions       constant rate of return with some protection
                                    and a rising scale based on years of service—so      from downside risk.
                                    you’re not investing large amounts of money              Along those lines, Bak observes that life-
                                    in unproven employees, but then as the per-          cycle or target-date funds have become an
                                    son is working for you longer you have auto-         increasingly popular choice for some plan
                                    matic step-up contributions already built into       sponsors seeking to offer members a “pre-
                                    the program,” he suggests. “And then, with a         built” fund where the asset allocation is done
                                    strong default fund policy, you can mitigate         for them—and is automatically adjusted as
                                    your downside risk.”                                 the memeber ages. And Rabovsky emphasizes
                                        Forcing members to participate is a major        the value of portfolio solutions that go
                                    issue many plan sponsors are grappling with          beyond traditional bonds and equities and
                                    today, says Ripsman: “Recently, we have seen         give DC members similar opportunities to
                                    plan sponsors rethinking their whole defined         DB plans. She says lower-cost DC products
                                    contribution strategy, to force employees to         are also essential because high costs can have
                                    get actively involved in the plan. In some cases     such a negative impact on performance.
                                    this can involve making meetings mandatory,              Meanwhile, when it comes to evaluating
“Set your contribution              making participation mandatory, even looking         plan performance, Bruce Winch, vice-president
levels and your policies            at ways to force participation in the investment     and national lead, institutional investment with
                                    election and decision-making process—things          AIM Trimark in Toronto, proposes that plan
based on what you’re
                                    like requiring employees to enroll and fill out      sponsors may have been looking at the wrong
trying to achieve, rather           an investment election before they can partici-      benchmarks. While employers are, in the main,
than what the guy down              pate in the plan, thereby removing the option        focused on returns compared to a selected
the street is putting into          of falling back on default investment options.”      index, employees are much more interested in
the plan.”                              Why are sponsors exploring these plan            the end result, he suggests.
                                    design elements? Partly because default                  Winch compliments plan sponsors, record
Michael Campbell,
vice-president, marketing with      options can give plan members a false sense of       keepers and consultants for doing a better
Group Retirement Services           security. Some employees assume that, since          job of assessing investment managers based
in London, Ont.
                                    the employer selects the default, they are           on their ability to remain true to their indi-
                                    doing so because they believe it to be the best      vidual style. However, he says, plan sponsors
                                    choice for their employees. Ripsman argues           need to concentrate on their long-term goals
                                    that there is a need for specific products tai-      rather than short-term performance bench-
                                                                                         marks. As for plan members, he says the
 ATTRACTION VS. RETENTION                                                                industry needs to encourage them to focus
 The survey results show that plans may be a useful tool in attracting and retain-       on the lump sum they will need in the future
 ing employees. However, eight in 10 members say that plan portability is very or        and help them monitor performance against
 somewhat important to them. Rabovsky suggests this may be a plan design                 their personal goals.
 issue—so there could be room for improvement. In any case, Sipes points out                 It all comes down to defining your plan’s
 that the high value members place on portability is good news for defined con-          objectives, says Campbell. “Set your contri-
 tribution plan sponsors because it demonstrates that one of the DC plan’s key           bution levels and your policies based on what
 benefits is, in fact, a priority for employees.                                         you’re trying to achieve, rather than what
                                                                                         the guy down the street is putting into the
                                                                                         plan. It’s old-fashioned and back-to-basics,
TOP TO BOTTOM                                                                            and it means applying some of the things
                                                                                         that work in DB to DC.”
How important are the following features of your employee retirement plan(s)?

                                                                                                    ACTION STEPS
     How important are these features of your                 Very/somewhat
     employer retirement plan(s)…                                important                • Simplify the offering and the enrollment
     Portability, that is being able to move your employee
     retirement plan with you if you changed employers                                    • Provide more relevant and targeted
     Transparency, that is being able to understand and                                     information
     easily choose your own investments within your                 76%
     employee retirement plan(s)                                                          • Consider portfolio products and autopilot
                                                                                            options like automatic enrollment and
     The number of investments you have to choose from              73%
                                                                                            automatic contribution increases
                                                                          Plan members

3: Investments:
Knowledge and behaviour

W      hen it comes to investment knowledge
       and behaviour, the research reveals
differences between how plan members per-
                                                      “The good news is that the majority of
                                                 employees seem to feel they are getting
                                                 enough investment information to make
ceive their investment knowledge and how         good investment decisions. The not-so-good
they actually behave. Of the 1,122 DC plan       news is that only 37% say they have a very
                                                 good or excellent understanding of their
                                                                                                   “The basics of investments
or group registered retirement savings plan
(RRSP) participants surveyed, 71% say they       employee retirement plan. The research is         should perhaps be taught
are very or somewhat confident that their        indicating that the majority of employees still   in the school system so the
employee retirement plans will provide the       lack understanding of their plan, in spite of     next generation does not
amount of money they’ll need to meet their       all the communication efforts put forth by        have an investment
financial retirement objectives under their      plan sponsors and suppliers,” says Sipes.
                                                                                                   knowledge gap that the
employee plan. Also, 74% say they are some-      “The conclusion I draw from that is that
                                                 people are ignoring investment information
                                                                                                   current workforce is
what or very confident they have all the
information they need to make the best           and they are okay with that,” he adds.            experiencing.”
investment decisions in their retirement plan.        Perhaps surprisingly, the majority of        Dianne Lee,
However, less than one in ten are very confi-    plan members surveyed want more, not              investment consultant,
                                                                                                   Hewitt Associates in Toronto
dent their plan will meet their financial        less, information about their investment
objectives or that they have the information     choices. Seventy-six per cent of all respon-
they need to make the best investment deci-      dents say they would like the same or
sions. Perhaps this is due to the low reported   more information from plan providers,
levels of understanding of the plan (37%         while 73% say they would like to receive
excellent or very good).                         the same or more information from their

Plan members who say they have an excellent or very good understanding of…

  Their own investment risk tolerance                                       39%

    Their employee retirement plan(s)                                     37%
                                                                                                   “I interpret those results
 The amount they need to contribute
 to their retirement plan to retire with                                                           not as plan members
      the amount of money they need                                                                wanting more volume of
                                                                                                   information but rather
 How the returns on their investments                                                              wanting more informa-
    will affect their retirement payout                              33%
                                                                                                   tion that is easy to
                       Asset allocation                           30%                              Jean-Daniel Côté,
                                                                                                   national leader of the
                                                                                                   DC consulting practice and a
                                                                                                   principal, Morneau Sobeco
       The implications of the foreign                                                             in Montreal
                property rule change              16%

                                                                NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS                     R9
                                    employer. Seventy-three per cent say they       that is easy to understand,” says Côté. “I
                                    would like the same of more information         don’t think they want another 20 pages on
                                    from the investment company offering the        the Web site or another binder. They want
                                    products. And 72% say they would like to        something that’s easy to digest.”
                                    get the same or more information from a
                                    financial advisor.                              Foreign Property Knowledge
                                        Despite these findings, however, only
                                    32% of plan members have used online or         The elimination of the foreign property rule
                                    hard copy tools provided by their employer      again shows a gap between what employees
                                    to make investment decisions within the past    think they are getting from their investments
                                    year and only 22% have attended employee        and their actual understanding of those invest-
                                    education sessions.                             ments. Forty-four per cent of respondents who
                                        “This begs the question, do members         participate in their DC plan or GRRSP and who
                                    have the basic knowledge of investments to      are currently working say they have taken full
                                    understand the information and tools avail-     advantage of the investment opportunities with
                                    able to them?” asks Dianne Lee, investment      the foreign property ruling changes over the past
                                    consultant with Hewitt Associates in            year. Yet only 16% of respondents participating
“While being invested is            Toronto. “The basics of investments should      in their DC plan or GRRSP say they have an
important and can’t be              perhaps be taught in the school system so       excellent or very good understanding of the
                                    the next generation does not have an invest-    implications of the foreign property rule change.
ignored, the bigger issue
                                    ment knowledge gap that the current work-           These results are not a surprise to Larry
for the DC market is that           force is experiencing.”                         Ketchabaw, manager, pension and benefits for
people are not saving                   While members appear to want more           Unisource Canada in Richmond Hill, Ont.
enough money to fund the            information, some in the industry aren’t        “As a plan sponsor dealing with employees on
retirement they are                 certain more information is really what plan    a daily basis, they really have very little knowl-
hoping for.”                        members are seeking.                            edge or don’t really seem to care about foreign
                                        “I interpret those results not as plan      property investment policy changes,” he says.
Bill Sipes,
marketing director, group savings
                                    members wanting more volume of informa-             Among participants, 78% say that per-
and retirement solutions with       tion but rather wanting more information        formance history is very important or
Manulife Financial in Waterloo

                                    KNOWING WHAT YOU KNOW
                                    Among plan members who rank their understanding of asset allocation as
                                    excellent, very good, or good, the average asset allocation is:



                                                                                             Domestic equities
                                                                                             Fixed income
                                                                                             Foreign equities

somewhat important when choosing their                   retirement. While being invested is important
investments. Seventy-six per cent say their              and can’t be ignored, the bigger issue for the
own level of understanding of the product                DC market is that people are not saving
is very important or somewhat important.                 enough money to fund the retirement they
    Three-quarters (75%) of respondents                  are hoping for.” says Sipes.
who are currently working strongly or
somewhat agree that upon their retirement,               On Financial Advice
their retirement payout is completely
dependent on how much they chose to                      Two-thirds (66%) of employees who partici-
invest, for low long, and how their invest-              pate in their group retirement plan and who
ments have performed.                                    are currently working say they would likely
                                                                                                           “As a plan sponsor
    “This is good news for the DC market-                use a company-provided financial advisor          dealing with employees on
place. There appears to be a good under-                 that they could contact free of charge for        a daily basis, they really
standing amongst plan members that what                  advice. Only one-quarter (25%) say they           have very little knowledge
they’ll get at retirement is dependent upon              would be likely to use a financial advisor who    or don’t really seem to
what they contributed and how their invest-              would charge by the hour for advice.
                                                                                                           care about foreign
ments did. That’s a positive result. However                 More than half (58%) of plan members
there still appears to be a gap in terms of ‘how         say that personalized expert advice would
                                                                                                           property investment
much money’ is needed to fund a comfortable              make their company’s retirement plan              policy changes,”
retirement. As an industry, a lot of effort is           more valuable to them. Forty-nine per             Larry Ketchabaw,
spend in the area of investments and getting             cent say more information or more                 manager, pension and benefits,
                                                                                                           Unisource Canada
invested properly as the way to build an                 frequent information would make the               in Richmond Hill, Ont.
appropriate amount of money to fund their                plan more valuable.
                                                             “Overall, the theme that came out of this
 The top three factors for plan members                  very strongly for me was one of our mem-
 when choosing investments are:                          bers wanting advice,” says Ketchabaw. “It’s
                                                         clear they don’t want to pay for it but they
 • Performance history (cited by 78% of plan
                                                         definitely want to have advice.”
   members as very or somewhat important)
                                                             Employees who participate in their
 • Level of understanding of the product                 group retirement plan are more likely than
   (cited by 76% of plan members as very or              those who don’t participate to have a for-
   somewhat important)                                   mal, written financial plan. Among plan
 • Type of investment (also cited by 76% of              members, 41% have a formal, written finan-
   plan members as very or somewhat                      cial plan, compared to 29% among employ-
   important)                                            ees who don’t participate in their employ-
                                                         er’s DC/GRRSP.

Plan members who say they agree strongly or somewhat that…

           Upon their retirement, their employee retirement payout is
           completely dependent on how much they chose to invest,                                                                  75%
                 for how long, and how their investments performed

   When they retire, they would like to be able to keep their employee
retirement investments with the same investment manager, rather than                                                       67%
       have to change providers or look for other investment products

       They have taken full advantage of the investment opportunities
           with the foreign property ruling changes over the past year                               44%

                                                                         NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS                R11
                                    “While it’s good to see that on average,           All of which complicates the matter of
                                participants in DC plans are more likely to        financial advice, he adds. “People are very
                                have a financial plan, in general still too        reluctant to pay for financial advice. When
                                few people have a retirement plan. Clearly         you tie that with the fact that members will
                                there’s a real opportunity here to encour-         want to increasingly leave their money in
                                age more plan members to get a financial           the pension plan when they retire, it
                                plan,” says Sipes. Among those who have a          becomes a question of where are they going
                                formal financial plan, 82% say they have a         to get that objective advice? As an industry,
                                financial advisor, while 59% say their finan-      that’s something we need to address.”
                                cial advisor helped them prepare their
                                financial plan.
                                    About two-thirds (67%) of plan members                   ACTION POINTS
                                currently working say they would like to            • Encourage plan members to develop a for-
                                keep their employee retirement investments            mal, written, financial plan. Doing so will
                                with the same investment manager, rather              give them a road map for planning their
                                than have to change providers or look for             retirement.
                                other investment products.                          • Look at your default investment options.
                                    Those results speak to plan members’              Consider whether lifecycle funds are an
                                general lack of desire to make investment             appropriate default option for your mem-
                                decisions, says Côté. “Once they’ve decided,          bership.
                                they don’t want to have to go through it
                                                                                    • Get back to basics. Emphasize to plan
                                again when they retire,” he says. “In the
                                                                                      members that contribution levels, rate of
                                future, we’re going to see more plan mem-
                                                                                      return, and length of time invested will
                                bers staying with the same provider and pos-
                                                                                      affect what they get at retirement.
                                sibly even in the same plan.”

Plan members who say they would be very or somewhat likely to use the following
information sources to make their employee retirement plan(s) investment choice:

A company-provided financial advisory they
    could contact free of charge for advice                                                                     66%

       Education sessions during work hours                                                                61%

      Printed manuals on the retirement plan
             and its investment opportunities                                                           59%

                         Printed newsletters                                                         56%

    Education sessions after work hours that
  significant others could also participate in                                                     54%

                          E-mail newsletters                                                48%

               A financial advisor who would
               charge by the hour for advice                       25%

4: Plan members: Their role

                                                       distribution for Group Retirement Services
T     here’s no question plan members are
      a critical part of the DC equation.
The research indicates that while plan
                                                       in London, Ont., “I really don’t believe that
                                                       that’s how employees feel.” He adds that
members appear to have an understanding                despite the way employees feel, they simply
of their responsibilities in a DC plan, they           do not act on the tools made available to
are also looking for a more direction from             them to take on accountability.                 “They’ve said all along
their employer.                                            More than half (59%) of employed plan       they want a DC plan,
    “In my opinion, employees don’t really             members, meanwhile, say they would like to      they want portability, but
want a DC plan,” says Christine Andrews,               be more involved in making their investment     in essence they don’t. They
manager, pension and benefits with Bayer               choices in their employee retirement plan. “I   want a DB plan. They
Inc. in Toronto. “They’ve said all along they          think the plan member has recognized their
                                                                                                       want to be protected.”
want a DC plan, they want portability, but             role quite clearly and has stepped up to the
in essence they don’t. They want a DB plan.            plate,” says Vince Rinella, vice-president,     Christine Andrews,
                                                                                                       manager, pension and benefits
They want to be protected.”                            compensation, pension and benefits with         with Bayer Inc. in Toronto
    When forced to choose, 42% of plan                 Maple Leaf Foods in Toronto. “But we’re
members say they would rather have a finan-            also hearing a very loud cry for help.”
cial advisor help choose and monitor their                 Andrews says it’s not clear to her that
investments for their employee retirement              plan members understand what’s expected
plan so that the best investment is made               of them. “Under our plan, the member’s
based on professional expertise. Just 27% say          role is to understand the plan, their own
they want to be responsible for their own              retirement expectations, and for them to
investment choices.
Twenty-four per cent,
meanwhile, say that           GETTING INVOLVED
because they don’t have
the time or the expertise     Plan members who say they agree strongly or somewhat agree that…
to choose their own
investments for their
employee retirement                                    70%
plan, they would rather
be automatically placed
into a group of invest-                                              58%
ments that is assigned
based on factors such as                                                                               “I think the plan member
their age, marital status                                                                              has recognized their role
and risk tolerance.                                                                                    quite clearly and has
    The majority (70%) of                                                                              stepped up to the plate,”
employed members
                                                                                                       but we’re also hearing a
strongly agree or some-
                                                                                                       very loud cry for help.”
what agree that they are
entirely responsible for                                                                               Vince Rinella,
                                                                                                       vice-president, compensation,
whether or not there is                                                                                pension and benefits with, Maple
enough money in their                                                                                  Leaf Foods in Toronto
employee retirement plan
for them to retire. “I
don’t know if that’s a             Ultimately, they are entirely   They would like to be more
heroic response—they                responsible for whether or     involved in making investment
like to feel they’re               not there is enough money       choices in their employee
                                 in their employee retirement      retirement plan
responsible—or if that’s a              plan for them to retire
naïve response,” says Jeff
Aarssen, vice-president,

                                                                  NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS                   R13
                                   understand the investment options,” she          millionaire? We have to provide a context,”
                                   says. “Based on the survey results, it doesn’t   he says. “That’s the fundamental issue. It’s
                                   look to me like employees are able to satisfy    something employers need to do.”
                                   all the requirements we expect of them.”
                                       “If they don’t know what they need to
                                   retire, how can they actually plan for that
                                   retirement?” she asks, noting that 65% of
                                                                                              ACTION POINTS
                                   plan members don’t know the total amount          • Be clear with plan members about what’s
                                   of money they’ll need to retire.                    expected of them under the DC plan.
                                       Hugh O’Reilly, a lawyer in the pension        • Provide a context for the plan. What is the
                                   benefits practice at Cavalluzzo Hayes               plan’s purpose? Is it to replace a certain
                                   Shilton McIntyre & Cornish in Toronto,              percentage of an employee’s income in
                                   argues that plan members are missing                retirement? If so, communicate that clearly.
                                   proper context for their DC plans. “Are
                                                                                     • Listen to your membership and solicit
                                   you trying to replace 10% of their income
                                   or are you trying to make the person a

                                   5: Plan sponsors: Their role

                                   P    lan members clearly have high expecta-
                                        tions of their employers when it comes
                                   to their group retirement plans. The major-
                                                                                    they don’t make their own investment
                                                                                    choices for their employee retirement
                                                                                    plans, the plan sponsor should step in and
                                   ity (73%) of working plan members say            take responsibility to ensure their contribu-
                                   they expect their employer to provide            tions are invested appropriately.
“In my view, we as a                                                                   Also on the paternalistic front, 62% of
                                   appropriate education, such as seminars
pension industry—                  and newsletters so that they can make the        plan members say their employer has a
whether it’s defined benefit       best investment choices in their employee        responsibility to ensure that the investment
or defined contribution—           retirement plan(s).                              choices they make in their group retire-
have lost sight of our                 Not only do plan sponsors need to pro-       ment plan are the best choices for them.
                                   vide context for members, says O’Reilly, they    Only 28% say their employer has no obli-
goals. If we have plans
                                   also need to clearly define what the purpose     gation to offer any kind of retirement plan
that provide a 2% or 3%                                                             to members.
                                   of their plan is.
or 4% match, we can                    “In my view, we as a pension industry—
more or less figure out            whether it’s defined benefit or defined con-                   GETTING VALUE
how much of the person’s           tribution—have lost sight of our goals,” he       Among plan members already participating
income is going to get             maintains. “The first question I think we         in their group retirement plan, the following

replaced. We need to               need to ask is ‘what is the purpose of these      items were cited as actions their employer
                                   plans?’ If we have plans that provide a 2% or     could take to make the company’s retire-
provide that context for
                                   3% or 4% match, we can more or less figure        ment plan more valuable to members:
the members.”                      out how much of the person’s income is            • Personalized expert advice (58%)
Hugh O’Reilly,                     going to get replaced. We need to provide
a lawyer in the pension benefits                                                     • Increase the amount members can con-
                                   that context for the members.”
practice at Cavalluzzo Hayes                                                           tribute to the plan (56%)
Shilton McIntyre & Cornish             When it comes to financial advice, 67%
in Toronto                         of plan members say they expect their             • More information or more frequent infor-
                                   employer to provide access to a financial           mation (49%)
                                   advisor so they can make the best invest-         • More investment choices within the
                                   ment choices in their group retirement              plan (48%)
                                   plan. The majority (63%) also says that if

Plan members who say they agree strongly or somewhat that…

     They expect their employer to provide appropriate education,
           such as seminars and newsletters so they can make the                                                                     73%
        best investment choices in their employee retirement plan

        They expect their employer to provide access to a financial
          advisor so they can make the best investment choices in                                                             67%
                                   their employee retirement plan

If they don’t make their own investment choices for their employee
retirement plan, their employer should take responsibility to ensure                                                      63%
 that their (the employee’s) contributions are invested appropriately

              Their employer has a responsibility to ensure that the
            investment choices the employee makes in their group                                                         62%
             retirement plan are the best choices for the employee

                          Their employer has no obligation to offer
                          any kind of retirement plan to employees                        28%

    “What you’re seeing here is an entitle-                plan. Forty-eight per cent say having more
ment philosophy from employees,” says                      investment choices in their plan would make
Ripsman. “It’s a DB expectation level.                     it more valuable. Yet, when asked the open-
Employees are saying they believe the                      ended question ‘is there anything else your
company owes them a pension plan, they                     employer could do to increase the value you
believe the company should help them                       place on the employee retirement plan?’ 50%
invest, and check their investments to                     say nothing, while 28% say they don’t know.
make sure they’re appropriate. I would                     Other mentions include an increase in
argue those are inappropriate expectations                 employer contributions (12%) and providing
for a DC plan.”                                            more information or financial advice (6%).
                                                               “Moving to DC entails a sharing of           “Moving to DC entails a
MANAGING EXPECTATIONS                                      responsibility,” says Alain Malaket, senior      sharing of responsibility.”
                                                           director, pensions with George Weston            The sponsor definitely has
Clearly, then, a large part of a plan spon-                Limited in Toronto. “The sponsor defi-           a responsibility in setting
sor’s job is to manage employee expecta-                   nitely has a responsibility in setting up the    up the program but
tions. “It’s important that plan members                   program but it has to be a shared responsi-
                                                                                                            it has to be a shared
have an understanding of what the plan is,                 bility. What we’re grappling with is where
what it isn’t, and what the objectives of                  that line is drawn—where the employee            responsibility. What we’re
the plan are,” says Ripsman. “They must                    has to meet the sponsor in order for this        grappling with is where
set the record straight with employees.                    thing to work.”                                  that line is drawn—
They must manage those expectations.                                                                        where the employee has to
They have to communicate the DC deal to                                 ACTION POINTS                       meet the sponsor in order
their employees and make sure employees
                                                             • Be clear on what you’re trying to achieve    for this thing to work.”
understand how the pension plan works.”
                                                               with the DC plan. What is the purpose of     Alain Malaket,
    While employees have high expectations
                                                               the plan?                                    senior director, pensions with
of their DC and GRRSPs, they are also per-                                                                  George Weston Limited in Toronto
ceived as a valuable benefit. When asked                     • Manage employee expectations through
what their employer could do to make the                       regular communication of the plan’s
retirement plan more valuable, 58% of plan                     purpose.
members cite personalized expert advice,                     • Use a variety of media to get your message
while 56% say employers could increase the                     across. Keep your messages short.
amount plan members can contribute to the

                                                                         NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS                R15
   Benefits Canada
would like to extend
 a special Thank You
 to the sponsors of
  the first annual
  survey of Capital
     plan Members.

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