Pension perspective: Too much choice?

(June 2008) It might be time to pay closer attention to the capital accumulation plans your clients are participating in at work — the more options they have, the less likely it is they’re making informed choices, or any choices at all.

In recent years, you’ve no doubt seen more defined contribution, group retirement savings plans and capital accumulation plans taking the place of traditional defined benefit pension plans, as more and more employers focus on “cost containment.”

“We have recently seen clients (employers) take aggressive action to contain costs,” says senior consultant Marc-André Vinson. “Most chose to keep their defined benefit plans intact for existing employees, but provide new hires with a different pension promise — one with more predictable, usually lower costs.”

In a recent survey of Canadian employers offering capital accumulation plans (CAPs), 81% said they had a communication strategy in place, but almost three-quarters still thought their employees were confused about the CAP investment options available.

The survey, An Overview of Capital Accumulation Plans, by Buck Consultants, polled 150 Canadian employers and found that 57% of sponsors, up from 40% in 2003, offer more than 10 investment choices — which explains the possible cause for confusion.

“The more options you give employees, the less likely they are to actually make informed choices. That can fuel investment by default,” said Peter Arnold, Buck’s national practice leader for investment and DC consulting. “Many well-run CAPs are taking a less-is-more approach to helping employees get through the investment maze.”

The majority of plan sponsors admit that their main concern regarding the defined contribution plans they offer is inadequate investment education — 86% said providing more education in the future is one of their top priorities. Currently, 59% of respondents say they use an outside vendor for investment education. Only 17% offer investment advice from an outside supplier.

In addition, plan sponsors said adding investment modeling tools and introducing or changing company matching contribution levels were on their list of future resolutions.

Other concerns that were top of mind with employers were: governance and compliance issues (68%), benefit adequacy (68%), employee satisfaction (66%) and cost containment (64%).

This story first appeared on BenefitsCanada.com.

Filed by April Scott-Clarke, Benefits Canada, april.scottclarke@rci.rogers.com