Putting a face on CAP MEMBERS THE BENEFITS CANADA SURVEY ON CAPITAL ACCUMULATION PLAN MEMBERS Contents: 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 knowledge. R2 NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS 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 SHOW ME THE MONEY 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 58% about 39% of their income from their employer’s retirement plan, 31% from 45% 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. R4 NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS 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 ownership.” 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 3% 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 23% 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. Government sulting with Mercer Investment Consulting in Janet Rabovsky, senior Personal savings Toronto, adds that, in the past, plan commu- investment consultant at Other 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 R6 NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS 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 process Portability, that is being able to move your employee 79% 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 R8 NOVEMBER 2006 • SPECIAL REPORT ON CAP 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 PENSION PLANNING 101 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 33% 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 understand.” 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: 12% 19% 46% Domestic equities 24% Fixed income Foreign equities Other R10 NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS 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. INVESTMENT DECISIONS 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.” MAKING CHOICES 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% R12 NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS 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 feedback. 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 R14 NOVEMBER 2006 • SPECIAL REPORT ON CAP MEMBERS GETTING AN EDUCATION 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 accumulation plan Members.