RELEASE Benchmark Report: Despite economy, Canadian employers contributing more, and more employees contributing the maximum, to their group retirement plans Winnipeg, March 2, 2010... Canadian employers are increasing contributions to their group retirement plans and more employees are maximizing their contributions to get full employer matching contributions, according to the 2009 Capital Accumulation Plan (CAP) Benchmark Report. Sponsored by The Great-West Life Assurance Company and based on a survey by Benefits Canada/Canadian Institutional Investment Network, this fifth annual report shows that employers contributed 4.6 per cent of salaries to their defined contribution (DC) pension plans in 2009, up from 4.5 per cent the prior year; and contributed 4.3 per cent of salaries to their group RRSPs in 2009, up from 3.9 per cent a year earlier. The benchmark report also shows that more employees are maximizing their DC pension plan contributions: 80 per cent of responding employers with DC pension plans said their plan participants maximized their contributions so they can get full employer matching, up from 75 per cent in 2008. For group RRSPs, 82 per cent of plan participants were reported to be maximizing their contributions, up from 75 per cent a year earlier. Among firms with fewer than 100 employees, 91 per cent reported that their employees maximize their contribution in order to optimize matching contributions from their employer. This research clearly illustrates how robust employer-sponsored retirement plans are in Canada, said Bill Kyle, Senior Vice-President, Group Retirement Services at Great-West Life, which administers one in three Canadian defined contribution retirement plans. The report shows that Canadian employers make significant commitments to group retirement plans and that employees value this benefit by taking maximum advantage of employer matching programs. The annual survey is an essential tool for monitoring the health of Canadian Capital Accumulation Plans (DC Pension, Group RRSPs, and Deferred Profit Sharing Plans), which play a growing role in Canada s retirement landscape, Kyle added. In fact, over 50 per cent of private sector workers now enjoy retirement plans at work, with over 70 per cent of this coverage being provided by CAPs. Other findings in the report: Overall, employer participation in group RRSPs rose in 2009: 46 per cent of respondents said the company contributed to their group RRSP, up from 32 per cent in 2008. Smaller companies were more likely to put money into their group RRSP. Among employers with fewer than 100 employees, 70 per cent make contributions, while 67 per cent of employers with 100 to 199 employees make contributions. Respondents reported that employees contributed an average of 4.5 per cent of salary to their DC pension plan in 2009, up from 4.2 per cent in 2008. /2 100 Osborne Street North, Winnipeg, MB Canada R3C 3A5 A member of the Power Financial Corporation group of companies.
- 2 - The 2009 CAP Benchmark Report www.greatwestlife.com/2009capbenchmarkreport.com is based on data collected in 2009 from 264 organizations. The average DC pension plan surveyed had assets of $93 million and the group RRSPs surveyed had assets of $22 million on average. About Great-West Life Great-West Life administers over 17,000 group retirement plans and over 1.2 million member accounts, representing nearly 30 per cent of capital accumulation plans (CAPs) in Canada. In the United States, Great-West is the fourth-largest group retirement plan record keeper based on total participants and Putnam Investments adds to the organization s North American presence in this market. Together we serve over 6 million members. - end - For more information contact: Marlene Klassen, APR Assistant Vice-President, Communication Services (204) 946-7705 Report attached below
2009 CAP BENCHMARK REPORT Getting It Right Plan sponsors are at last striking a balance when it comes to their CAP plans Sponsored by
Great-West Life Working in partnership with Great-West Life, your organization can help build a more secure financial future for your employees. Our easy plan administration and account management, superior services and customized plan features combine to create a plan that s right for you and your plan members. Great-West administers nearly one in three defined contribution retirement and savings plans, offering clients the support of Canada s largest network of group retirement specialists. Our clients benefit from first-class service and products, supported by a strong and stable organization that focuses on accuracy and dependability. Serving the financial security needs of over 12 million people across Canada, Great-West and its subsidiaries, London Life and Canada Life, have more than $162 billion* in assets under administration. The companies assets under investment management in the pension and group savings marketplace total $31.9 billion.** Great-West and its subsidiaries are members of the Power Financial Corporation group of companies. In the U.S., our sister company, Great- West Life & Annuity Insurance Company, is the fourth-largest group retirement record keeper, with US$92 billion* in assets under administration. Together with our subsidiaries, we offer: Registered retirement savings plans Registered pension plans (defined contribution) Deferred profit sharing plans Simplified pension plans (available in Quebec and Manitoba) Non-registered savings plans Tax-free savings accounts Investment-only plans If you have any questions regarding the findings in the 2009 CAP Benchmark Report, or the methodology behind them, contact John Son at John.Son@rci.rogers.com. Every business situation is unique. We look forward to working with you to develop a plan as distinctive as your organization. *as of Dec. 31, 2008; **as of Sept. 30, 2009 2 2009 Benchmark Report Capital Accumulation Plan Edition Canadian Institutional Investment Network
A message from Great-West Life It s been a bumpy ride, to say the least intense market volatility, tough credit markets and a global recession have taken their toll on investors worldwide. Although Canada s capital accumulation plans (CAP) have seen diffi cult times, there are many bright spots on the horizon. The 2009 Capital Accumulation Plan Benchmark Report sees sponsors of defi ned contribution pension plans (DC) and Group RRSPs moving forward and making positive changes. Indeed, after a few years of watching the trends, our survey results for 2009 show tremendous progress on a number of fronts. Plans are getting simpler for members to join and use to maximize their retirement savings. We are also seeing better default options, fewer investment choices and an increase in mandatory participation across Canada. This is good news and means that employers are helping their employees to use this savings benefi t to their advantage. Great-West Life is pleased to support this research from the Benefits Canada/Canadian Institutional Investment Network Capital Accumulation Plan Survey, which was conducted with CAP sponsors between May and August 2009. It is an essential tool for monitoring the health of Canadian DC plans and Group RRSPs, which continue to play a growing role in Canada s retirement landscape. Over the years we have been involved, we have tracked sound progress in both of these areas, as employers streamline and improve their retirement benefits for employees. Last but certainly not least I would like to thank all of the plan sponsors who participated in this year s research. Without your input this report would not be possible. I would also like to extend thanks to our industry friends and colleagues. To everyone: all the best in 2010. Bill Kyle Senior Vice-President Group Retirement Services Capital Accumulation Plan Edition Canadian Institutional Investment Network 2009 Benchmark report 3
Getting It Right Plan sponsors are at last striking a balance when it comes to their capital accumulation plans After a year of dismal market performance and layoffs, there s good news on the employee benefits front. Despite the bad economic news, employers haven t back-tracked on any of the positive advances they ve made in recent years when it comes to their capital accumulation plans (CAP), according to the results of the 2009 Capital Accumulation Plan Benchmark Report. In fact, 2009 has seen some substantial signs of improvement in both the defined contribution pension plans (DC) and Group RRSP landscape, with a renewed focus on plan design, contributions and making it easier than ever for employees to take advantage of the retirement savings benefits in front of them. Highlights This survey shows some major improvements on the plan design front with fewer choices, simpler options and a trend to mandatory enrolment across the board. At the same time, provision of information, education and advice appears to be less important this year, as we note declines across the board in each category for the first time. Plan design could be trumping communication as members of DC plans and Group RRSPs take a less do-it-yourself approach to asset allocation in favour of easy-to-use options. All this means employers are still working to strike the right balance between giving employees the freedom to choose and providing them with the tools to build appropriate retirement savings. Is it finally starting to work? Time will tell this year s survey results do show positive signs, however. After years of searching for the perfect mix, they just might be getting it right. 4 2009 Benchmark Report Capital Accumulation Plan Edition Canadian Institutional Investment Network
Section 1 The DC Landscape The average market value of DC pension plan assets in this year s survey is $93 million, with the average number of plan participants at 1751 (Exhibit 1). While 87% of DC plan members are able to choose their investment options (Exhibit 2), the most positive development is the number and nature of the investment options facing DC plan members. DC Plan Size Market value of DC pension plan assets ($ millions) $93.0 Average number of plan participants 1751 Average number of active plan participants 1684 Average number of terminated/retired participants 67 exhibit 1 DC plan size (N = 190) The average number of investments held by DC participants has dropped again, to 3.3, down from 5.1 in 2008, as plan members streamline and simplify their approach to asset allocation. When it comes to simplifying plan members choices, plan sponsors are offering balanced and target-date funds that automatically rebalance or retool asset mix without too much involvement on the part of the member. According to this year s survey, 68% offer balanced funds in fact, it s become the most popular investment option among plan sponsors. Target-date allocation funds and target-risk allocation funds are further behind at 12% and 11%, respectively (Exhibit 3). This could be due to the fact that such products came onto the Canadian scene a mere fi ve years ago it will take more time to determine whether or not they will ultimately replace balanced offerings as the most popular option. exhibit 2 Do the DC pension plan members have the ability to make their own investment decisions? ( N = 190) No 13% Yes 87% Capital Accumulation Plan Edition Canadian Institutional Investment Network 2009 Benchmark report 5
18 25 27 28 34 43 40 39 39 38 42 52 57 68 67 70 74 74 76 79 1 3 2 3 4 3 5 2 4 8 9 12 13 12 12 11 11 12 19 19 exhibit 3 DC plan investment options (N = 180) 2009 2008 Notably, most investment options declined between 2008 and 2009 in some cases, substantially. For example, Canadian equity, both active and indexed, dropped from 79% to 39% and from 42% to 27%, respectively. Similarly money market (from 74% to 52%), Canadian bonds (from 76% to 43%), and U.S. equity (70% to 40%) were all down by large percentages year-over-year. Whether this is a result of the economic downturn or plan sponsors cleaning house in their investment options, in the wake of the financial crisis, remains to be seen. 6 2009 Benchmark report Capital Accumulation Plan Edition Canadian Institutional Investment Network
exhibit 4 DC plan default investment options (N = 167) Balanced Money Market Cash/Daily Interest Target-Date Asset Allocation Target-Risk Asset Allocation GIC Combination Target-Date/ Target-Risk Asset Allocation Other For plan members who don t choose, there s the default option. The most popular default used to be a low-return, low-risk option like a money market, GIC or cash fund that meant plan members who failed to provide instructions to his or her employer about where to direct contributions could sit in a savings vehicle not designed to build adequate returns for retirement. Much has changed in the last few years, with the rising popularity of balanced and target-date funds in place of low-return default options. Today, 38% of plan sponsors now offer a simple balanced fund to plan members who choose not to choose, while a further 8% and 6% offer target-date asset allocation and target-risk asset allocation funds as an option. Through these vehicles, plan members have a better chance of saving enough for retirement. However, money market and cash are still on the list, at 28% and 11%, respectively (Exhibit 4). Getting involved Participation and contribution policies are also showing some positive changes. To start, we noted a slight increase in the number of employees immediately eligible for enrolment in the DC plan, up to 37% from 34%. When an employee is eligible depends on the size of the company the bigger it is, the more likely employees can join as soon as they start. Among the largest employers (with over 1000 employees), 50% allow new hires to join the plan right away. Capital Accumulation Plan Edition Canadian Institutional Investment Network 2009 Benchmark report 7
exhibit 5 DC plan eligibility requirements (N = 177) It s a longer wait for employees at smaller fi rms it takes a year for employees of 42% of fi rms with 500 to 999 employees and 39% of fi rms with 100 to 199 employees (Exhibit 5). Why the disparity? One reason could be that smaller companies fi nd eligibility easier to manage from an administrative standpoint. While larger companies might have several locations to deal with, smaller companies can focus on a single location. In such cases, size seems to matter. Immediately 34% 37% 3 months 8% 12% 6 months 8% 12% 12 months 25% 24% 24 months 9% 9% Other 8% 12% 2009 2008 exhibit 6 Mandatory or voluntary DC plans (N = 183) Of course, whether or not the plan is mandatory makes a difference where enrolment is mandatory, employees are eligible immediately at 43% of employers, versus 20% where enrolment is voluntary. Mandatory enrolment is also becoming more common 69% of employers make enrolment in the DC plan a requirement, up from 61% in 2008 (Exhibit 6). The increase is good news by requiring new hires to join the company pension plan, employers are encouraging them to save for their retirement years and take advantage of the benefit being offered. It s also a good hiring and retention strategy the faster you can offer employees this important benefit, the better. 69% 61% 39% 31% 2008 2009 Mandatory Voluntary 8 2009 Benchmark report Capital Accumulation Plan Edition Canadian Institutional Investment Network
The majority (76%) of employees also contribute to their DC plan and those contributions are on the way up more good news for plan sponsors and plan members. In 2009, employees contributed an average 4.5% of their salary up from 4.2% in 2008. Employers are also putting in more on average 4.6% in 2009 versus 4.5% the year before (Exhibit 7). In addition, employees are maximizing their contribution levels in greater numbers: 80% of respondents say their employees max out, a jump from 75.3% in 2008. Smaller is better when it comes to maxing out 91.1% of the smallest fi rms say their employees maximize their DC contribution levels to get the top company match. exhibit 7 Do employees contribute to the DC pension plan? (N = 192) 76% 76% Understanding their options Whether it s through information, education, advice or a combination of factors, employers are still ensuring their employees understand their investment choices and the consequences of their decisions. But these numbers are shifting, as plan sponsors strive for a new balance between plan design and communication, where each component has a role in helping members. Indeed, the numbers are changing year-over-year: today, 87% offer information (down from 98%), 71% offer education (down from 85% in 2008) and 39% offer advice (down from 45% in 2008) (Exhibit 8). 2008 2009 How much does the employee contribute? MEAN 4.5% (2008: 4.2%) How much does the company contribute? MEAN 4.6% (2008: 4.5%) If applicable, what % of your DC plan members maximize their contribution level in order to achieve the maximum company match? MEAN 80.0% (2008: 75.3%) exhibit 8 Within your DC pension plan, which of the following do you provide? (N = 221) INFORMATION, providing facts and details to plan members about the DC pension plan and/or about investment or retirement planning principles 87% 98% EDUCATION, providing information to plan members about the DC pension plan and/ or about investment or retirement planning principles, plus monitoring employee behaviour to ensure information has been received and understood 71% 86% ADVICE, providing recommendations on investment strategy personalized to a member s specific situation, needs and longterm goals, or providing access to a thirdparty financial advisor 39% 45% 2009 2008 Capital Accumulation Plan Edition Canadian Institutional Investment Network 2009 Benchmark report 9
Section 2 Focus on Group RRSPs Group RRSPs are a smaller part of the employee benefi ts landscape, but they have grown in recent years. The market value of Group RRSP assets participating in the survey were on average $21.8 million. At the same time, there was on average 331.3 Group RRSP participants (Exhibit 9). exhibit 9 Size of Group RRSPs (N = 118) Group RRSP Size Market value of Group RRSP assets ($ millions) $21.8 Average number of plan participants (Mean) 331.3 Average number of active plan participants (Mean) 285.8 Total number of terminated/retired participants (Mean) 45.6 When it comes to choice, nearly all (96%) Group RRSP members are able to make their own investment decisions, up from where it was in 2008 (91%) (Exhibit 10). This year s survey results show money market funds stood at to 86%, while balanced funds were at 84%. Finally, Canadian bonds stood at 78% in 2009 (Exhibit 11). The trend here seems to be toward less risky, more balanced funds, perhaps in the wake of the fi - nancial crisis and the turmoil in global markets. exhibit 10 Do the Group RRSP members have the ability to make their own investment decisions? (N = 108) No 4% Yes 96% 10 2009 Benchmark report Capital Accumulation Plan Edition Canadian Institutional Investment Network
Money Market Balanced Canadian Bonds Canadian Equity, Active U.S. Equity Global Equity GIC Canadian Equity, Index EAFE Equity Cash/Daily Interest Target-Risk Asset Allocation Mortgages Real Estate Target-Date Asset Allocation Foreign Bonds Employer Stock Real Return Bonds High Yield Bonds Combination Target-Date/Target-Risk Asset Allocation Alternative Investments 7% 5% 4% 2% 2% 24% 20% 17% 16% 16% 14% 37% 48% 60% 70% 69% 67% Average number of investments HELD by Group RRSP members 4.5 84% 78% exhibit 11 Availability of investment options for Group RRSP 0 20 40 members (N = 129) 60 80 86% Balanced funds aren t as prevalent as the default option in Group RRSPs as they are in DC plans only 31% have them in place for members who don t make choices. Money market rates slightly higher at 33% (Exhibit 12), indicating that there is room for improvement in ensuring that Group RRSP members who don t make choices are directed to funds that give them a better chance of growing their contributions. However, a very positive development in the Group RRSP landscape is the steep drop in the average number of investments held by members down to 4.5 from 8.5 in 2008. A drop of this nature suggests plan members are streamlining their investments and focusing on a few core products to help them meet their retirement savings needs. Here, less is more as plan members keep it simple. Capital Accumulation Plan Edition Canadian Institutional Investment Network 2009 Benchmark report 11
exhibit 12 Group RRSP default investment options (N = 121) Participating and Contributing More positive news on the Group RRSP front: contributions are on the rise and there appears to be more focus on helping employees take advantage of this benefi t through mandatory enrolment. Money Market 33% Balanced 31% Cash/Daily Interest 13% Target-Date Asset Allocation 10% Target-Risk Asset Allocation 9% GIC exhibit 13 When are your Group RRSP members eligible for participation? (N = 121) 3% 0 5 10 15 20 25 30 35 More than half (59%) of employers make their Group RRSP available immediately upon hire (up slightly from 57% in 2008) (Exhibit 13). Larger employers are most likely to offer immediate enrolment, a similar trend seen among sponsors of DC plans. One reason for this could be that it s not as easy for larger employers with multiple locations to track eligibility. Immediately 3 months 6 months 12 months 24 months Other 15% 16% 6% 8% 14% 11% 4% 2% 3% 6% 59% 57% 2009 2008 12 2009 Benchmark report Capital Accumulation Plan Edition Canadian Institutional Investment Network
84% 58% 42% 16% 2008 2009 There has been a big jump in mandatory enrolment, with 42% of employers making enrolment in the Group RRSP a requirement, up from just 16% in 2008 (Exhibit 14). That s a very big jump and an indication that employers are getting serious about helping their employees save for retirement. Smaller employers are the most likely to go the mandatory route at 89%. By contrast, among the largest employers with more than 1000 employees, only 17% make enrolment mandatory. The difference could be attributed to the fact that small companies use only Group RRSPs as a way to provide retirement savings benefi ts, while at larger fi rms with multiple plans they are one of many choices. Mandatory Voluntary exhibit 14 Mandatory or voluntary Group RRSP (N = 109) Employer contribution levels to Group RRSPs are on the rise 46% of respondents say the company contributes, up from 32% in 2009 (Exhibit 15). Smaller companies are more likely to put money in, particularly among the smallest employers 70% those with one to 99 employees make contributions while 67% of employers with 100 to 199 employees make contributions. 2008 32% exhibit 15 Does the company contribute to the Group RRSP? (N = 101) 2009 46% Capital Accumulation Plan Edition Canadian Institutional Investment Network 2009 Benchmark report 13
Employee's Earnings Employee's Contributions Years of Service Company's Earnings Other 0% 0% 3% 17% 56% exhibit 16 What is the basis for your company s Group RRSP contribution? (N = 45) exhibit 17 Within your Group RRSP, which of the following do you provide? (N = 124) Most companies make their contributions to the Group RRSP based on employees earnings (56%) (Exhibit 16). How much are they putting in? On average, companies are contributing 4.3% of salary to the Group RRSP, up from 2008 (3.9%). The average employee contribution dipped, however, down to 3.8% from 4.4% in 2008. More employees are maximizing their contributions to get the best company match 81.5% of Group RRSP members are maxing out, a jump from 74.5% in 2008. Employees are working to get more out of their Group RRSPs according to the data another positive sign that they value this benefi t and understand what they need to do to get the most out of it. It looks as if employers are ready to dial back on the amount of information, education and advice being given to employees about their Group RRSPs perhaps as they settle into the CAP Guidelines after an initial surge. Along with their DC counterparts, respondents indicated they are offering much less information (86% in 2009 versus 98% in 2008), signifi cantly less education (67% in 2009 versus 87% in 2008) and somewhat less advice (45% in 2009 versus 47% in 2008) to members (Exhibit 17). This shift could indicate a sea change in the way employers view their Group RRSPs they could be focusing more on plan design than merely communicating information and education about investments to their employees. We ll be watching this trend in future reports. INFORMATION, providing facts and details to plan members about the Group RRSP and/or about investment or retirement planning principles EDUCATION, providing information to plan members about the Group RRSP and/ or about investment or retirement planning principles, plus monitoring employee behaviour to ensure information has been received and understood ADVICE, providing recommendations on investment strategy personalized to a member s specific situation, needs and longterm goals, or providing access to a thirdparty financial advisor 2009 2008 14 2009 Benchmark report Capital Accumulation Plan Edition Canadian Institutional Investment Network
Conclusion At a glance, this year s survey contains lots of good news and some bad news in the wake of the fi nancial crisis and global recession. Going forward, our future surveys will continue to monitor the health of CAPs in Canada, both in terms of the challenges facing employers and their continued ability to improve and streamline their Group RRSP and DC plan offerings. With a renewed focus on plan design, one thing is clear from our 2009 results Canadian employers are still focused on helping their employees make the most of their benefi ts to ensure that they save enough for a long and happy retirement. Methodology Data was collected from 264 organizations that offer a defi ned contribution pension plan and/or Group RRSP to employees/ members, between May and August 2009. The majority (199) was updated online through Rogers Canadian Institutional Investment Network database, while 65 additional organizations provided data through an online survey fi elded by Rogers Business and Professional Publishing Research Group. The data was merged and is reported in aggregate. Who s Who? The majority of respondents were from the private sector (64%), with a higher concentration of employers in either resource-based industries and construction (20%) or manufacturing (19%). Half of this year s respondents (51%) now offer employees a defi ned contribution plan only up from 38% last year. Thirty percent of respondents offer both a DC and a Group RRSP (down from 57% last year), while Group RRSPs have increased from 5% last year to 19% this year. As our data shows, both Group RRSPs and DC plans are on the rise as more employers seek to provide their employees with an affordable and simple retirement savings option. At the same time, fewer employers are offering both more and more, they are tending to offer one or the other. This supplement is published by Rogers Publishing Ltd., Business and Professional Publishing Group, One Mount Pleasant Road, 7th Floor, Toronto, Ontario M4Y 2Y5. Telephone: (416) 764-2000, Fax: (416) 764-2878. No part of this publication may be reproduced, in whole or in part, without the written permission of the publisher. Copyright 2009 Capital Accumulation Plan Edition Canadian Institutional Investment Network 2009 Benchmark report 15
If we were in Landscaping, the lawns would be impeccable. To be successful in any business, attention to detail is crucial. And this is especially true when it comes to providing retirement services for your employees. At Great-West Life we are completely committed to the highest principles of accountability and providing superior, reliable group retirement services. If you want your group retirement plan to run as smoothly as you wish everything else did, give us a call at 1-800-452-0025 or visit www.grsaccess.com Retirement solutions that never stop working Great-West Life and the key design are trademarks of The Great-West Life Assurance Company (Great-West), used under licence by its subsidiaries, London Life Insurance Company (London Life) and The Canada Life Assurance Company (Canada Life). Group retirement, savings and payout annuity products are underwritten by London Life and Canada Life respectively, and marketed and serviced by Great-West.