Are you confident that your employees' retirement pension plan is generous and competitive? Everything looks fine and there are no complaints from employees. But are you absolutely sure there is no problem?
If your retirement pension plan has not been updated within the past 2 or 3 years, it may very well not be in the best of shape. It may be uncompetitive, costly and unattractive for employees without you knowing it. Read on to find out what you can do to ensure that your current retirement pension plan is competitive!
How can you find out? A diagnostic of your plan will answer this question and enable you to make the appropriate adjustments. The following items should be part of the diagnostic prepared by your group annuity broker.
Type of retirement pension plan
Are you offering a group SPP (Simplified Pension Plan), a DCPP (Defined Contribution Pension Plan) or another type of retirement pension plan? This plan may have been the right choice when it was set up, but is this still the case?
With the current manpower shortage and a job market where employers fiercely compete for qualified candidates, a lack of flexibility in your pension plan can be a serious impediment. For example, if you offer a plan where employer contributions are locked-in (i.e., they can only be used to provide retirement income), your employees could be disappointed they cannot use these contributions for the Home Buyers’ Plan (HBP).
Therefore, it is crucial to offer the right type of plan in order to optimize employee attraction and retention.
Investment fund offering
The range of available investment funds keeps changing, and it is important to update your offering in order to help employees reach their retirement goals.
Do you know which investment funds are offered to your employees? Are these funds performing well? If your employees manage their own portfolios, have they reviewed their selections recently? Do the selected funds match their age and risk profile?
Several investment approaches are possible, but the following features are often key in providing an adequate investment package:
Availability of target retirement date funds
Does your plan include target retirement date funds? This approach, developed a decade ago, allows employees to select a fund with the target date that is closest to their expected year of retirement (2020, 2025, 2030, etc.). As retirement gets nearer, these funds become increasingly conservative in order to reduce the risk of incurring a significant loss.
A strong majority of plan members generally choose these types of funds as they are simple and efficient.
Number of funds offered
Although most employees will likely select a target retirement date fund, you should not overlook other types of funds. It is important to offer a variety of funds based on the following criteria:
- Diversified asset classes
- Different management styles (value, growth, index, sustainable, etc.)
- Renowned managers
- And so on.
It is generally advisable not to offer too many choices to employees. Offering 15 to 20 high quality funds is preferable to an array of 100 funds. This will allow employees to make simpler choices and be sure to select a fund that is closely monitored by professionals.
The default fund is the fund in which the plan will invest the contributions of employees who did not make an investment selection upon enrollment. It is generally recommended to have a target retirement date fund as the default fund.
Management and administration fees
Management fees are charged to whoever invests money in mutual funds. These fees are set when the plan is implemented. However, as the assets and the number of members increase, the fees should be reviewed regularly.
The group annuity broker is the expert who can help you negotiate with your financial institution. If your fees have not been renegotiated over the past few years, your employees are probably paying too much without realizing it. It is important to keep a close eye on these fees.
Sometimes, administration fees are charged to the employer. If this is your case, the group annuity broker will often be able to eliminate them entirely.
Every financial institution has strengths and weaknesses. How does your institution compare with others in terms of the following:
- Online services and platform
- Customer service
- And so on.
The group annuity broker is very knowledgeable about the different financial institutions and will guide you to ensure you are dealing with the one that best meets your needs and those of your employees.
When did you hold your last plan information meeting with your employees (virtual or not)? Although retirement may be far away for many employees, it is important to inform them and give them the tools they need to adequately prepare for retirement. An annual information meeting is generally a highly effective means of achieving this objective.
Have your employees been advised of the latest changes to their retirement pension plan (lower fees, new web platform, new tools, etc.)? A simple memo to employees will usually do the job.
Are you ready?
As you can see, a comprehensive diagnostic of your retirement pension plan can only have a positive outcome for your business and your employees. You will also know where you stand in terms of plan competitiveness.
AGA advisors have the necessary expertise to guide you through your plan diagnostic and with any adjustments that may be required. Do not hesitate to contact us today for a free diagnostic.
Group Insurance and Group Annuity Plans Advisor | Holding a Bachelor of Actuarial Science degree, and Associate of the Canadian Institute of Actuaries, Simon Pagé worked as group annuity plans advisor for large consultants and actuarial firms. With his 15 years’ experience, he has developed a renowned expertise, notably in the selection, development and implementation of annuity plans. In addition, Simon holds a permit in group insurance adding to his expertise and bringing a global vision in benefits related issues for his clients.
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