The case for employee retirement planning

By Brian Hayhoe
|Canadian HR Reporter|Last Updated: 06/18/2002

Although terms such as fiduciary duty, independence, unbiased and objective are not staples of employer-sponsored retirement plans today, they will likely feature prominently in the not-so-distant future. Recent events such as the downfall of Enron and the rapid growth of defined contribution (DC) pension plans have led regulators to reconsider current regulations.

According to research from Statistics Canada, between 1996 and 1998, the number of Canadians covered by DC plans grew by close to 20 per cent, the largest increase over the last 10 years. While an alarming number of companies are choosing to provide employees with what can be called “do-it-yourself retirement plans” (defined contribution plans, group RRSPs, DPSPs), regulators have yet to catch-up with the move. But with cases like the collapse of Enron, regulators are likely to act sooner rather than later.

With the “do-it-yourself” type of retirement plans, employees are responsible for choosing the investments that could make or break their retirements. This contrasts with the more traditional defined benefit (DB) plans where the risk is born by the employer. If the DB plans investment returns are not adequate enough to satisfy the employee’s pension, the employers are responsible for the shortfall. On top of that, DB plan investment decisions are made by professional money managers.