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In recent years, Canadian employers have watched the global trend of organizations closing or freezing their company sponsored defined benefit pension plans in favor of defined contribution retirement plans. Many signs point to a migration of assets from traditional DB plans to DC plans. In the future, organizations will have to contend with a number of issues:
New demands of the workforce: With 5 generations in the workforce that are saving for a variety of life cycle choices (not just retirement), demands for better outcomes and highly rated investments, the role of communicating and educating employees becomes increasing difficult.
New regulations: Mercer projects that with assets moving to defined contribution (although currently at only 5% of total Canadian retirement assets – it is expected to grow to 30% by 2030) great regulatory scrutiny will undoubtedly follow. With additional regulations managing a defined contribution plan will become more complex and resource intensive.
Complicated plan administration: With more effort to manage employee defined contribution plans, time and resources can be taken way from focusing on a company’s core business.
Globally, much of the world has steadily moved away from traditional pension plans, with the few exceptions such as Canada, Japan, Finland and Portugal. In the US, DB plan assets have been shifting exponentially to DC plans, with DC plan assets now exceeding DB plan assets in the marketplace. Look for this trend to gain momentum as companies seek financial advantages of DC plans, and consumers look for control and mobility of their own savings and investments.
Why is Canada next? In a Statistics Canada study released in 2016, the number of Canadians in a DB plan has been steadily dropping, while those in DC and hybrid/combined plans are growing substantially.
As more Canadian organizations make a retirement plan change, they also will be facing a new reality: Canadians are not financially ready to retire. And while Mercer research shows that this is a top savings objective for workers, they still are not prepared. As firms implement more defined contribution plans, they must remember that an education component is required to ensure employees fully understand the change from DB to DC, and their new role and responsibilities. In addition, about half of all Canadian workers have no workplace retirement plan, which opens the door for more companies to offer an enhanced benefits program including DC savings and investment provision and benefit from enhanced productivity, morale, and good will. With the expected increased regulations comes more complexity and additional resource requirements.
For most organizations, the future management of Defined Contribution Plans seem daunting. Mercer is ready to support you with a broad spectrum of support models based on each client’s comfort level and expertise. Consider the following when thinking about change:
1. Focus on employees: Healthier workers are better workers, and this includes physical, mental, and financial health. With a multi-generational workforce with a variety of working arrangements, variable communication is key to ensure employee satisfaction and involvement in planning for their future
2. Look to the future (but act today): We help you project future outcomes based on an holistic view, specialized expertise, predictive modeling, and analytical rigor. Once we provide a clear view into the future, it’s time to act (don’t wait and react to others).
3. Outsource the burden: Companies have different levels of internal resources, and we’re flexible to work with all degrees of knowledge. We are developing an exciting new proposition, the Mercer Defined Contribution Outsourced Solution, which will allow you to offload as much or as little of the responsibilities of running a defined contribution plan. It will be widely available later in 2017, but we’re happy to discuss it with you now.
4. Contact us: We’ll partner with you to help you see the future and navigate through your employee savings plan changes. Call us and we will set you up for the future, today.
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