The tight labour market has made attracting and retaining workers 50 and over an attractive recruitment option. Can pension and benefits plans be tailored for mature workers? It’s up to HR to assess the affordability of entitlements on the older-worker wish list.
New accounting regulations, implemented by the Canadian Institute of Chartered Accountants and effective as of Jan. 1, 2000, require employers to carry future post-retirement benefits as a liability on ledgers. Previously, firms claimed such expenses as they were paid out. The result is that companies are now reluctant to place these liabilities on their books.
“Employers are in a catch-22 situation,” said Gren MacDonald, vice-president of sales and marketing with health and dental benefit giant Green Shield Canada.
“Firms that see a necessity in attracting and retaining mature workers — because of the needs of a knowledge-based economy and labour shortages compounded by an aging workforce that is retiring — are interested in offering post-retirement benefits as a carrot. But the new accounting rules make it difficult to expand benefits because they must hold them as a potential liability on their books.”
So instead of expanding post-retirement benefits, organizations are opting not to introduce them and scaling back the ones that exist, said John Jackson, a consultant in group health-care practice at Watson Wyatt’s Toronto office. The new regulations have brought post-retirement benefits to the attention of finance departments that historically haven’t become this involved in benefits issues.
“This is going to be an increasing area of conflict between finance and HR executives,” said Jackson, adding that the interest level in providing benefits is indeed high. Organizations are recognizing there are individuals who can make a big contribution after official retirement age, he said.
The accounting change came about because of a desire to bring Canada’s regulations in line with U.S. and international practices.
“When these standards were introduced in the U.S. about eight years ago, there was a great deal of lobbying against them because of the same concerns Canadian HR professionals have,” said Jackson. “Since their adoption U.S. employers have been changing their benefits.”
One outcome in the U.S. — likely to make its way north as well — is a move toward capped cash-balance accounts. In Canada, the term “health-care spending account” is being used to describe such offerings.
Health-care spending accounts give employees a fixed yearly amount that they can spend as they see fit — addressing differing individual needs. The finance department is happy because it now has a definitive yearly amount to carry, rather than an unknown liability.
And while capped benefits are better than no benefits after retirement, caps are something seniors’ groups would like to see organizations review.
“They’re catastrophic,” said Bill Gleberzon, associate executive director of the Canadian Association of Retired Persons (CARP). “A lot of people discover after retirement that they do have coverage but it has an annual or lifetime cap.”
Caps are just one of many issues CARP says employers need to address to encourage older workers to stick around and to provide fair treatment of retirees.
“When employers are trying to keep younger workers on the payroll they bend over backwards,” he said. “Why should that thinking not apply to people who are retiring? It’s about retaining good people.”
Rather than provide post-retirement benefits, many companies will opt to make it easier for retirees to purchase individual health and dental coverage when they leave an employer’s group plan upon retirement. Companies can help look out for retirees interests by offering conversion products that allow for continued coverage, said MacDonald. The financial burden falls on the retiree, but a better package is available through the conversion of an existing plan member, and the departing employee has the comfort of knowing the employer has reviewed the continuation of coverage to ensure due diligence and quality. The advantages of being in a group are maintained.
Despite opting for conversion plans, employers may still be faced with older workers looking for assistance with paying premiums in return for delaying retirement.
“Companies should be picking up these premiums,” said Wally Coates, first vice-president and issue committee chair of One Voice, a national seniors’ advocacy group.
“Another problem is that part-time workers are not receiving pensions and benefits, something that leads to poverty for the elderly,” added Coates, a retired Saskatchewan teacher.
While continuation of benefits after retirement is a big issue, seniors’ groups have a long list of needs and preferences. For HR professionals, the task becomes assessing the affordability of entitlements on the older-worker wish list.
Elder care, home care and flex arrangements
Older workers may have older parents they are helping to care for. Employer assistance with elder care can make a big difference in someone’s ability to stay in the workforce. Formal assistance — such as paying for home care, whether it be for a person’s parent or spouse — is one option, but at the very least organizations will have to offer flex-work arrangements. Flex arrangements are not just a must for mature workers with care responsibilities, they are an essential part of a recruitment and retention strategy: older workers will insist upon it after years of nine-to-five commuting.
As for home care, government health policies have shifted care from institutions without adequately boosting home-care services, leaving individuals to fend for themselves. While home-care coverage is an attractive health plan add-on from the employee point of view, the costs will likely deter many employers from doing so. “Widening packages to cover home and elder care will meet employer resistance,” said Coates, who added the key is too look for cost-effective solutions, such as job sharing.
One benefit employers should consider is providing hearing tests and aids. Hearing problems are common among older workers, and providing assistance improves quality of life as well as productivity, Coates said.
DC versus DB pensions
“There’s a well-identified trend towards defined contribution plans, but in light of the changing workforce and strategies being developed to manage older workers, HR shouldn’t be too quick to throw out that defined benefit plan,” said Paul Christiani, an actuary in Watson Wyatt’s Toronto office. “DC plans are not as attractive for a company with an older workforce.”
DB plans can do two things for organizations concerned about managing older workers:
•they allow for attractive early retirement packages if an organization is looking to downsize older workers; or
•for organizations looking for incentives that will retain older workers, they can be used to increase pension payouts far more effectively than DC plans can.
“For older staff considering working additional years, DB plans allow the extra service to increase the monthly pension payout by a greater amount than is the case in DC plans,” said Christiani. “In a DC plan you can only contribute on a current-service basis that doesn’t allow you to bump up the pension very much.”
Take the example of a worker retiring at age 62 with a $1,000-a-month pension. If the employee works another year and retires at 63, the extra year’s service under a DB plan could be structured to provide an increase in the monthly payout of $100. Under a DC plan, the increase would not normally convert to a monthly payout matching the DB level.
So for HR, the issue is not so much DC versus DB, rather it’s a case of reviewing DB plans to ensure they are aligned with workforce strategy. Is the plan encouraging early retirement, when your strategy is the opposite?
There is a scenario in which DC can be more attractive to older workers, Christiani added. If the plan member has core income needs covered and is primarily working for further assets, then a DC plan can provide a better tax shelter for the additional earnings.
When it comes to encouraging workers to delay retirement, companies could also use some help from government. Legislative changes are needed if pension plans are to be used for maximum retention impact, as the retirement systems in most provinces discourage employees working shorter weeks because it hurts their pensions when they retire outright.
“Income tax rules governing phased retirement actually present some legal obstacles rather than encouraging workers to do so,” said Christiani.
Explaining pension and benefits offerings should be part of a strategy that includes retirement education in general.
Phyllis Bentley, president of One Voice, stressed the need to ensure women receive retirement education.
“A former employer of mine invited an investment group to come in and talk to people about financial issues. This allowed me to have an independent income, something most women of my generation don’t,” said the 72-year-old former health-care administrator. “This is a growing issue for boomer-aged women who represent a very different generation. They will demand retirement education that is focused on women.”
Companies are generally aware of the need for pension education, but what is often overlooked is similar information about benefits, said MacDonald of Green Shield.
“Individuals have to take more ownership for their health-care coverage as they get older,” he said. “We are getting increasing gaps in coverage, and people have to start moving away from an entitlement mentality to one of being a more educated consumer responsible for their own needs.
“Companies should take more ownership of educating individuals. It’s common for pensions and should be done for health care as well.”
And, it’s also important to remember retirement education isn’t just about money.
“Retirement can result in a lack of self-worth, isolation and health problems associated with inactivity that all lead to depression,” said CARP’s Gleberzon.
“Employers can help by educating retiring employees about physical and spiritual issues. On top of moral reasons for doing so, there is a saving to health-care costs if people remain healthier.”