2015 TODAY S TOP RETIREMENT TRENDS There's a lot of change happening in the pension industry today. We explore some of the trends that could impact company plans. On the surface, the pension plan industry may not seem like the most bustling sector. Many see their plans as a simple retirement savings tool members contribute to the plan and the administrator invests those funds in the market to help boost that employee s retirement savings. Behind the scenes, though, the industry is filled with technological innovation, government lobbying, fascinating debates around the future of retirement and more. Every year, new trends pop up that require quick thinking from record keepers, who are constantly trying to find new ways to help members save more for retirement. In this year s Retirement Trends report, we look at some of the biggest issues having an impact upon sponsors, members and the industry as a whole. Readers of this report will find insights into three of today s most important trends: how to use Big Data properly, the introduction of the Ontario Registered Pension Plan (ORPP), and how to get more members to contribute to their plans and to save more than they do right now. To get at the heart of these issues, Benefits Canada spoke to leading experts from three of the country s largest pension administrators Sun Life Financial, Desjardins Insurance and Great-West Life. Desjardins Insurance s Eric Filion, vice-president of marketing and investment strategies, is particularly interested in how Big Data will impact contribution rates. By collecting data on members, sponsors will be able to tailor their financial education programs so they can more effectively reach certain age groups or employee types to help them save. For Tom Reid, Sun Life Financial s senior vice-president of group retirement services, the ORPP is one of the most pressing issues facing companies today. In 2017, many businesses will be forced to pay into this government-created savings plan and even more will have to adopt it in 2020 and that could dramatically alter the savings and labour landscape in this country. At Great-West Life, Amanda Fickling, the company s marketing and communications manager, is thinking about how companies can smarten up their defined contribution plans. Not enough people are saving, so what can they do? Is auto-enrolment the answer? Better investment options? Improved education? We explore all of this and more in Benefits Canada s 2015 Retirement Trends report.
q&a ACCELERATE PLAN ENGAGEMENT How does Desjardins energy module help sponsors? It sounds like a lot of buzzwords, but it s based on a behavioural engine that analyzes a large volume of data and then displays the data to sponsors through a dashboard so they can get a clear picture of where their participants stand with respect to participant engagement and retirement readiness. We sort the data into three categories. There s demographic data who you are. There s behavioural data what you do. Then there s financial data how much do you save regularly? We then take it all and blend it together. ÉRIC FILION Vice-president, development, marketing and investment strategies, group retirement at Desjardins Insurance Desjardins has been a user of Big Data for a while. How has your usage of it evolved over the last 12 months? We ve come a long way since last year, but what s important for us (and it s what everyone s talking about) is engagement: having engaged participants. For us, Big Data has been really about being able to measure this engagement: to give plan sponsors a clear picture of their group and a clear set of actions. However, it s less about the data and more about how we can deliver new business insights we say from Big Data to big thinking. We want to evolve a plan, or make a difference in participant engagement and, ultimately, in the level of the members retirement readiness. What does the data tell you about people? By aggregating the data, we can gauge participants levels of interest, motivation and knowledge (around saving). We use as many as 13 different criteria to measure these things, based on demographic, behavioural and financial data. We can get a good idea of the members level of engagement. Here s something specific that we found: we noticed that newer employees were more likely to react to peer pressure tactics. We observed that, for every five years of service that an employee had under his belt, he was 5% less likely to take action. So that [kind of information] allows us to target campaigns to different groups. Your way, plain and simple s E3 approach evolves. Our new E3nergy Module fast forwards employee engagement with their retirement plan. Entice Encourage Engage To learn more, watch a short video at yourwayplainandsimple.com. desjardins insurance refers to desjardins financial security Life assurance Company. proud partner of Will you add more data sources in the future? Social media, perhaps? Our challenge is always to create a link between the data and participant engagement. If we found that participants who go on Facebook are more likely to be engaged in their plan, then we would include it. We re always looking for new ways to evolve the model and evolve our behavioural engine. What s is the dashboard that sponsors get access to? It s an engagement dashboard that allows us to have a conversation with the plan sponsor about engagement levels, trends and the characteristics of their employees. We can break it down by various categories, such as age and sex. For instance, an employer can see on the dashboard that employees over 50 are not engaged, so they know they need to do something. It can help determine a company s entire human resources strategy. The objective of the dashboard is to transform data into insight and transform insight into action. Can you rely on Big Data too much? Shouldn t instinct still play a part? That is the biggest issue following Big Data blindly. Big Data allows us to better target participants in, say, face-to-face meetings and be better prepared to make meetings more impactful to members. But we know the best way to engage people is to sit down in front of them, build a relationship and talk to them about the challenges of retirement. We re working every day, so we don t lose contact with participants. Big Data is about having more information to create a plan that resonates with people. What challenges still remain when it comes to Big Data? It s around how to give sponsors access to these amazing tools without overwhelming them. We don t just want to dump everything on the plan sponsor s plate. Again, it s all about transforming data into insight. retirement trends 201 5 3
q&a We work The Canada Revenue Agency allows Canadians to contribute up to 18 per cent of their annual income, up to a maximum dollar amount, and it would be great to see more employees reach the maximum. for the babysitters. How can the industry players encourage members to invest more per paycheque? The T-ball coaches. Members tend to contribute up to the amount needed to trigger their employer s maximum matching amount. So, one option to consider is increasing the member contribution rate needed to trigger the maximum employer matching contribution. Ideally, members will recognize the opportunity their employer is offering them to boost their savings with what is essentially a guaranteed rate of return equivalent to the employer s match. The traditional industry recommendation is that members save between 10 per cent and 14 per cent of their annual income, which is typically a healthy savings rate to achieve. Plan sponsors are encouraged to consider designing their employer matching program so it achieves the maximum savings target when combined with the employee contribution. As a starting point, the 2014 CAP Benchmark found that employers match on average 5.2 per cent of salary for DC plans and members contribute 4.3 per cent. The bedtime storytellers. The tucker-inners. AMANDA FICKLING Manager, Marketing & Communications Great-West Life Group Retirement Services The toddler chasers. The after-school tutors. Why do companies need to smarten up their DC plans? We work for people who believe We work for your company. We work for you. With more than 130 sales and service experts working in 12 offces across the country, we provide group retirement solutions as diverse as you. Visit www.grsaccess.com to learn more. RETIREMENT SOLUTIONS THAT NEVER STOP WORKING Great-West Life, the key design and Retirement solutions that never stop working are trademarks of The Great-West Life Assurance Company. T:10.75 in a custom-built retirement. Some members may procrastinate in making an investment decision for fear of making a mistake. They may also select a contribution amount that is too low to achieve adequate income in retirement. To help address these challenges, plans can be smartened up that is, plan sponsors can design their plans to default to pre-set selections when no other decisions are made by the employee. Two frequently cited options include choosing a target date fund as the default fund option, and setting a meaningful default contribution rate for members, with autoescalation of contributions to coincide with salary increases or the enrolment anniversary. How would mandatory enrolment work? Is that a solution? Yes, it is a key part of the solution. Mandatory enrolment helps ensure employees start saving as early as possible, so they can benefit from long-term compound growth. Mandatory enrolment can also keep members from missing out on the opportunity to boost their savings with employer matching, if available. Mandatory plans encourage significantly higher participation rates than voluntary plans: in 2014, the CAP Benchmark Report found voluntary DC plans had participation rates of only 79 per cent versus 98 per cent for mandatory DC plans. Those numbers are even lower for group RRSPs, which tend to be voluntary. What about auto-escalation? Sponsors can work with payroll administrators to automatically escalate members contributions in lockstep with salary increases, for example, or annually, on the anniversary date of enrolment. Why is the act of saving more important than picking the right investment? It s more important to start saving as early as possible and make meaningful contributions than to try to pick the best investment, because of the benefits of compounding savings over time. Even if they pick the hypothetical best fund but only contribute $20 a month, members will not save enough to retire. So, ideally, members will start saving as early as possible, and set a meaningful contribution rate so they can best position themselves to achieve retirement income adequacy. Is there a way for plan sponsors to smarten up the investments themselves? Yes. Move default funds away from money market funds and into target date funds. Money market funds are best used as a short-term investment option, as they don t generate sufficient returns over the long run. If the members of these plans don t choose an alternative investment, they likely aren t maximizing their savings potential. Although there has been a slow decrease, it s disappointing to see that 12 per cent of DC plans still offered money market funds as the default in 2014. Conversely, target date funds automatically adjust underlying investment options to suit the member s chosen retirement date, so the member only has to make two decisions: which year they want to retire in, and how much they want to contribute. Fortunately, momentum appears to be on the side of target date default funds, as the CAP Benchmark Report has seen these options increase year-over-year, from 28 per cent in 2013 to 33 per cent in 2014. retirement trends 201 5 5
q&a Simplify with SUN LIFE FINANCIAL Sun Life Financial can help your workplace retirement and savings plan offer innovative solutions tailored to the needs of your plan members, backed by exceptional governance practices. Our experienced team of investment professionals offers extensive governance support, including our comprehensive investment monitoring program: Watch List and CAPsure our Capital Accumulation Plan (CAP) Investment Diversification Warranty. The Sun Life Financial Watch List: Our eyes on your plan investments Our Core investment platform is subject to a rigorous governance program. The Watch List is an extension of this program and can help you focus on the key issues impacting investment managers or funds as part of your ongoing governance process. CAPsure: Ensuring your fund lineup meets CAP guidelines The CAPsure warranty affirms that if the investment options you make available in your plan meet a number of established criteria, you will satisfy the Capital Accumulation Plan (CAP) diversification guidelines by providing sufficient investment diversification across asset classes, investment style and objectives. Investment solutions for every group retirement plan Drawing on Canada s largest universe of workplace savings plans, we offer access to the insight and expertise of Sun Life Financial s experienced investment professionals across Canada, our Core investment platform managers, the International Investment Centre, and more. And that s not all! Speak with your Sun Life Financial Group Retirement Services representative and gain investment insight and top-notch governance support for your workplace investment program. INVESTMENT SOLUTIONS AND GOVERNANCE SUPPORT GROUP BENEFITS GROUP RETIREMENT SERVICES INDIVIDUAL INSURANCE AND WEALTH Life s brighter under the sun www.sunlife.ca Group Retirement Services are provided by Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies. TOM REID Senior vice-president of group retirement services, Sun Life Financial How have sponsors reacted to the ORPP? Almost half of our employers haven't figured out how they re going to respond yet. Some plan sponsors have communicated directly that they re going to have to absorb the cost, some will make voluntary plans mandatory and waive waiting periods while others have said they will eliminate or reduce other benefits to stay cost neutral and potentially hire fewer employees going forward. Others are looking at whether or not increasing contributions meets the comparability test. Some are bothered by the almost one-size-fits-all nature of ORPP s plan design. [They re wondering] why the government [would] care where contributions are coming from. Why not allow a 6% employee contribution and a 3% employer contribution or any combination that gets us to 8+%? It s only companies that have at least a 4% and 4% match that don t have to switch to the ORPP. We have many clients with very thoughtful plan designs and contribution formulas that won t pass the 4% and 4% test. What might the ORPP mean for existing plans? One very likely response might be that they can t afford to contribute 3% if they also have to contribute to the ORPP, so they will be forced to divert contributions from some of their own plans to the government s plan. Consequently, [their own] plans won t get the same scale and asset growth. The ORPP [also] ignores group RRSPs and deferred profit sharing plans and, in particular, the ones where withdrawals are not allowed, [which are] aimed at retirement. We have a lot of group RRSP sponsors and deferred profit-sharing plan sponsors that have fantastic plans creating great retirement outcomes, but they re being ignored and told that they have to start contributing to an ORPP in 2017. How will the ORPP impact employers who have Ontario workers? If a company has employees in Ontario, then they re impacted by the ORPP. It will create imbalances among employees in different provinces or covered under the same collective bargaining agreements. Sponsors have indicated to us that shifting their sources of labour to other jurisdictions is a serious possibility. If the cost of labour inputs goes higher, then they have to think about where they can get that same labour for less. Are plan sponsors planning to redesign their existing plans to become exempt from the ORPP? If you have a DC pension plan for at least some of your employees, then you don t get phased into the ORPP until 2020. If you have a DC plan that has a contribution rate of 4% from the employee and 4% from the employer, then you never get phased in. So, DC plans that are at, say, 3% plus 3% have a choice. They can increase their contributions to 4% plus 4% and become comparable, or they can take money out of their contributions and place it into an ORPP and only contribute 1.9% and 1.9% to their DC pension plan. There are many permutations, too. It s likely the vast majority of plan sponsors will divert money from other retirement savings plans to the ORPP because they simply cannot afford to increase their overall payroll costs. What kind of communication challenges could this create for employers and their employees? As a whole, our industry is regularly challenged with helping plan members to understand their plan, the investment options, etc. The ORPP will add another layer. If cost neutrality is important to an employer, adjustments to benefit costs for their employees will inevitably happen. This means that employers will be put in a potential position of having to reduce something (a benefit) the employees have today in order to fund an increased cost imposed on them by the government. This can certainly introduce many communication challenges, particularly when employees may perceive it to be a takeaway. For large employers who have employees across the country, plan design uniformity can be important to many. Should they treat their Ontario employees differently and if they do, does that present challenges with a mobile workforce within the same company? retirement trends 2015 7
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