Canadian Employers Focus on Managing Pension Plan Risk Following Economic Downturn, According to Hewitt Survey
October 08 2009 - 8:00AM
Marketwired
Hewitt Associates (NYSE: HEW) -
Many Canadian employers are devoting significant time to their
retirement programs this year according to a recent survey
conducted by Hewitt Associates, a global human resources consulting
and outsourcing company. According to the 196 organizations that
responded to the Canadian Retirement Trends 2009 survey, efforts
with respect to plan management centre on reducing exposure to
risk, and employee communication and education around retirement
income adequacy are high on the corporate agenda.
Plan Design Under Review
"Regardless of whether they sponsor defined benefit (DB) pension
plans or capital accumulation plans (CAPs), such as a defined
contribution (DC) pension plan, over half (59 per cent) of
employers are somewhat or very likely to assess the appropriateness
of their retirement program's design this year," said Andrew
Hamilton, a senior retirement consultant with Hewitt in Toronto.
"While that doesn't necessarily mean that they're going to change
the design, we are seeing renewed interest from some DB plan
sponsors in considering a transition to a DC plan."
Two-thirds of CAP sponsors are likely to conduct a comprehensive
review of their investment fund offerings. Half of respondents with
a DB pension plan are very likely to perform funding and accounting
projections and 41 per cent are very likely to assess risks
(financial and non-financial) based on current strategies. "The
goal is to ensure that employer-sponsored retirement programs are
striking the right balance between risk and return for employees,"
stated Hamilton.
Employee Responsibility
Organizations are also stepping up communication efforts so that
employees understand the need to save for retirement and how the
company plan can help. Over 40 per cent of employers are confident
that their programs enable employees to retire with sufficient
retirement assets - at least in theory. "Saving for retirement
doesn't become a concern for many employees until they hit age 45
or 50," said Dianne Tamburro, a senior investment consultant in
Hewitt's Toronto office. "By then, it may be too late to build up
an adequate nest egg to retire comfortably, even with other sources
of savings." A high priority for 42 per cent of employers is
ensuring that employees understand that they need to be responsible
for their own future.
Ideally, CAP members join the plan early, increase contributions
over time, and invest more conservatively as they get closer to
retirement. "In addition, some CAPs are designed so that employers
match employees' contributions, up to a certain limit. Members who
don't take advantage of this provision leave free money on the
table," stated Tamburro. "These are the basic, but important,
messages that organizations want to ensure employees understand and
act on."
Investment Decisions
Helping employees make appropriate investment decisions is
particularly challenging and employers with a CAP use multiple
methods to educate and assist their members. The most prevalent
forms of education currently utilized are online investment
guidance (54 per cent), phone access to investment advisory
services (49 per cent) and in-person financial education seminars
(47 per cent). "It's not surprising that these resources have the
highest utilization, as some of these services are available
through the plan's recordkeeper and included in their fees," said
Tamburro. "Fewer employers offer online (36 per cent) or in-person
advisory services (24 per cent), primarily due to the additional
fees or potential liability associated with these services."
Forty-five per cent of employers surveyed provide target
risk/lifestyle funds (funds with a static asset mix of equities and
fixed income that range from conservative to aggressive) and 28 per
cent offer target date/lifecycle funds (funds with a dynamic asset
mix of equities and fixed income that shift to more conservative
investments as the maturity/retirement date approaches). Target
risk and target date funds are simple tools to help employees
adequately diversify their investments. "Considering that target
date funds were only launched in Canada less than five years ago,
the relatively high percentage of plans offering these funds is
noteworthy," said Tamburro. "Their prevalence is largely due to the
popularity of the product in the U.S."
The survey also indicated that the number of employers offering
retiree medical and dental coverage is declining. "Sixty per cent
of employers currently offer post-retirement health care benefits,"
said Hamilton. "However, a third expect to reduce coverage for
future retirees and 43 per cent may look to retirees to share more
of the cost of these benefits. This means that employees have even
more reason to save as they may have to foot some or all of the
bill for health care expenses not covered under provincial
plans."
Copies of Hewitt Associates' Canadian Retirement Trends 2009
survey report are available from Hewitt by calling (416) 225-5001,
or by e-mail to infocan@hewitt.com.
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations
around the world with expert human resources consulting and
outsourcing solutions to help them anticipate and solve their most
complex benefits, talent, and related financial challenges. Hewitt
works with companies to design, implement, communicate, and
administer a wide range of human resources, retirement, investment
management, health care, compensation, and talent management
strategies. With a history of exceptional client service since
1940, Hewitt has offices in more than 30 countries, including
Canadian offices in Calgary, Montreal, Regina, Toronto and
Vancouver, and employs approximately 23,000 associates who are
helping make the world a better place to work. For more
information, please visit www.hewitt.com/canada.
Contacts: Hewitt Associates Marcia McDougall (416) 227-5713
marcia.mcdougall@hewitt.com www.hewitt.com/canada
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