New trends in retirement plans are a challenge according to Human Resource consulting agency Morneau Shepell’s recent study called Trends in Human Resources. Not only do employers want to offer competitive retirement plans to their employees, but 21% also want to reduce both the costs and the risks associated with the retirement plans they offer.
DB and DC Employee Pensions Plans
Here are three trends in retirement plans that Canadian employers should understand.
DB Plan Sponsors – De-Risking Retirement Plans
A Defined Benefit Pension Plan (DBPP) is where the income received in retirement is pre-set and typically calculated using a formula that includes employee’s years of employment and earnings. The employer manages the assets and the employee will receive statements each year showing the total retirement benefits in the plan.
The study shows that there’s a new retirement planning trend for employers offering DBPPs:
- 38% are reviewing their investment strategy
- 38% are reviewing their plan design
- 18% are considering converting their DB plan to a DC plan
DC Plan Sponsors – How to Make Retirement Income Adequate
A Defined Contribution Pension Plan (DCPP) is where the income received in retirement is based on the assets in the retirement account upon retirement. The employee determines where to invest contributions from a variety of investment options based on their risk tolerance and goals. Upon retirement the amount within your DCPP is based on contributions and the performance of earnings over the years.
According to the study, DC plan sponsors are looking at different ways to provide payment options for retirees who typically are left to search out investment products on their own.
Rather than letting retirees make poor or expensive decisions, 27% of DC plan sponsors are already providing payment options or seriously considering doing so.
By providing payment options, DCPP Sponsors can enjoy several benefits:
- Reduced post-retirement investment fees, which will increase retirees’ income
- Nurture an ongoing relationship with retired employees
- Maintain assets and balances in the retirement plan in order to keep fees stable
Employers Also Considering Other Aspects of Retiree Benefits
In addition to improving the financial side of retirement for employees, some employers are also considering employee health:
- 31% provided health benefits to retirees
- 57% do not provide health benefits to retirees and have no intention to do so
These new trends in retirement plans reveal emerging options to provide for employees’ health needs well into retirement, with one option being a retiree exchange, which gives retirees access to benefits while keeping employers’ costs fixed.
For more information on emerging trends in retirement planning and on how to effectively implement or manage retirement planning within your employee benefits program, please contact our professional advisers at Benefit Strategies Inc. by calling 1-780-437-5070, or by filling out our online Contact Form.
See also, our blog article on the Realities of Retirement Planning in Canada.