Canada’s pension plan sponsors are focusing on communications with participants, particularly about retirement income adequacy, according to the Canadian Retirement Trends Survey 2012 by Aon Hewitt.
Among employers surveyed, 95 per cent are somewhat or very confident in the competitive position of their plans. However, only 16 per cent are very confident members understand the details of future retirement benefits, and only 12 per cent are confident members are taking accountability for their own future.
As a result, 83 per cent of sponsors plan to review communications with members. By comparison, 59 per cent are likely to assess the design of their plans in 2013, found the survey of more than 200 employers.
“Demographic changes in the coming decades will result in waves of retiring baby boomers, with fewer workers available to support the retirement system,” said Will da Silva, senior partner, retirement consulting, at Aon Hewitt. “However, shorter term financial pressures and regulatory requirements appear to be discouraging plan sponsors from addressing long-term sustainability strategies. “
DB plan design changes
The absolute cost and cost volatility of defined benefit (DB) plans remain the main incentives for those sponsors looking at changes, found the survey. The number of closed or frozen DB plans has continued to rise and has reached 50 per cent.
However, 77 per cent of DB plan sponsors made no changes to their plans in 2012 and 68 per cent expect to maintain the status quo this year as well. In addition, 69 per cent are unlikely to evaluate phased retirement alternatives and 61 per cent are unlikely to analyze aging workforce issues.
Only two per cent have opted for a so-called “hard freeze” for DB plans in Canada, far lower than in the United States, said Aon Hewitt.
Capital accumulation plans
For capital accumulation plans (CAPs) — which include defined contribution (DC) plans, group RRSPs, tax-free savings plans, deferred profit-sharing and stock plans — increased communication appears to be a clear focus, with 84 per cent of CAP sponsors planning to communicate with members about their plans.
Investment advisory services and financial education figure prominently in plan sponsors planning efforts, according to the survey. While many organizations continue to provide in-person services, with traditional call centres, for example, there is also a strong tendency toward online activities or web-based interactive communication that provide personalized financial education sessions.
“Three-quarters of CAP plan sponsors will focus on communicating general investment education messages to their plan members,” said da Silva. “To do so, about a third of the sponsors use webcasts/webinars to deliver financial education and another 35 per cent intend to do so in 2013.”
Retiree health and benefits
Although a majority of respondents are unlikely to make changes to their retiree health program in 2013, due to the legal complexity of such changes, almost one-third are likely to increase contribution levels for future retirees, found Aon Hewitt.
As well, 25 per cent of plans will increase contribution rates for current and future retirees and the same percentage plan to reduce benefits for the future retirees or reduce or eliminate benefit eligibility altogether.
“Many employers continue to make downward changes for futures retirees, with 20 per cent offering no retiree medical coverage,” said Greg Durant, chief actuary, health and benefits practice, at Aon Hewitt. “We also observe an emerging trend where 10 per cent are likely to move toward a defined contribution medical plan.”
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