Life cycle funds simple, flexible

Funds take pension guesswork off table for employees, help employers demonstrate good governance in DC plans
By Robin Stanton
|Canadian HR Reporter|Last Updated: 11/02/2009

As Canada’s group retirement market has shifted from defined benefit (DB) arrangements to defined contribution (DC) solutions, responsibility for making prudent investment choices has also shifted from experts and committees to individual plan members. However, a lack of interest or knowledge at the employee level has made investment selection an overwhelming challenge for many.

As the DC market has evolved, new types of investment funds have been introduced to demystify the selection process. Investment platforms that initially focused on having members build their own portfolios (which can overwhelm members with choice) have given way to a preference for asset allocation funds (that match an investor’s style to a pre-packaged solution) and, finally, to life cycle funds (that adjust fund allocation as a member ages). Within most plans, there continues to be room for some combination of these options but, for many employees, the simplicity of life cycle funds makes them a valuable and increasingly popular option.

While choice typically sounds appealing, there is a hidden obstacle: Many employees given access to so many choices are overwhelmed and, instead, prefer to make no choice at all. For employers that want the retirement savings program to be a valuable benefit to employees, receiving plan reports that show employees aren’t appropriately using the plan can be a source of frustration — and concern.