HR departments are allies in client education

Just as Canadians are being asked to take more responsibility for saving for their retirement, employees are being asked to make more decisions regarding their employer-sponsored pension plans. The problem is no one is helping them make the right decisions, which is why T. E. Wealth is sitting down with human resources professionals from across the country to draw them into the discussion of retirement planning.

Although employer-sponsored pension plans aren’t what they used to be — as many shift to defined contribution plans instead of the more generous defined benefit plans — they are still an integral part of many Canadians’ retirement plans. According to a recent Statistics Canada report, 48.6% of Canadian families have assets in an employer-sponsored pension plan, with a median value of $68,300.

But from T. E. Wealth’s experience, many don’t understand how their pension plans work or even whether they have a defined contribution or defined benefit plan. T. E. Wealth counsels companies in various industries on how to increase their employees’ financial literacy.

Most employees work on the old assumption that their employer will issue them their first pension cheque a few weeks after they retire, says Scott McKenzie, a regional vice-president and general manager at T. E. Wealth in Toronto. “Now that so much is done on your own, there is so much risk there,” he says. “There is a huge gap between what the employee understands and what the company thinks they understand.”

This could be a problem for companies that switched to DC plans with the hope of passing risk onto the employee. The encounters that fee-only planning firms have had in recent years have prompted T. E. Wealth to set up a booth at the HRPAO (Human Resources Professionals Association of Ontario) conference this week.

In T. E. Wealth’s opinion, HR professionals should be an integral part of discussions when it comes to employer-sponsored pension plans simply because they are on the front lines when an employee comes in with a question.

Companies would be wise to protect themselves. Guidelines for Capital Accumulation Plans, published by the Joint Forum of Financial Market Regulators in 2004, spell out what plan sponsors need to consider. The guidelines, while voluntary, are considered to be the “gold standard” for employers sponsoring pension plans. The rules state that good governance practices of these plans mean that CAP members should have access to information, decision-making tools and investment education.

T. E. Wealth’s goal is as much to protect the interests of employees as those of the corporation. Human resources departments are the best way to address both, says McKenzie.

But there’s more to it than that. “The more employees understand the total compensation picture and the more resources they have in managing their own financial security around what they are receiving from their employer, it improves the loyalty factor, especially out west, where there is a lot of competition for talent right now,” says Ismo Heikkila, T. E. Wealth’s national director for group services.

Adds McKenzie, “Philosophically, corporations need to decide beyond the compliance level what types of obligations they really have [to their employees].”

There is no right way to getting information out, whether it’s done via lunch-hour seminars to web conferences to one-on-one counselling. “Nothing works all the time, so you do everything all the time,” McKenzie says. A cliché he admits, but there are ways to narrow that down through surveys or focus groups to see where the main learning gaps are. T. E. Wealth, for instance, begins its counselling session with corporations by performing an audit and then building its educational strategy from there.

There’s room for other advisors to follow T. E. Wealth’s lead, the only thing Heikkila recommends is that they be comfortable speaking to large groups and delivering presentations. Avoiding jargon might not be a bad idea either.

Independent financial advisors can play a role, too, by asking their clients if they have a pension with their employer. “In order to do a proper job for a client, they need to know the big picture: what their value system is in terms of how they spend their time and money, what their goals and objectives are,” says McKenzie. “Many times their client doesn’t really understand it, they are afraid to ask questions, and they may not have the financial literacy.”

Heikkila and McKenzie add, being a fee-only planner doesn’t hurt either. Corporations are skittish when it comes to potential conflicts of interest, such as recommending to their employees a financial advisor tied to a mutual fund company or to a bank. “Some corporations don’t want to go there, even if the advisor is aboveboard,” says McKenzie.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(01/31/07)