Benefits January 30, 2014

Canadians Underestimating Cost of Retirement

January 30, 2014 (PLANSPONSOR.com) – Nearly all Canadians plan to rely on government retirement provisions to support themselves during retirement, a recent study shows.
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BMO Financial Group’s “Registered Retirement Savings Plan (RRSP) Study” finds that almost 90% of Canadian workers plan to rely on either the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP) to cover living costs during retirement. Almost one-third (31%) report they plan to rely heavily on the CPP or QPP, despite the fact that the average monthly payout is less than $600.

“Given the amount that the CPP or QPP pays out, Canadians should not rely on them as a primary source of income to fund their retirement,” says Chris Buttigieg, senior manager for wealth planning strategy at BMO Financial Group, based in Toronto. “They should consider the CPP and QPP to be a supplementary component of their overall retirement income solution and focus on creating their very own ‘personal pension plan’ by contributing to an RRSP on a regular basis.”

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Buttigieg notes that even for those who can count on a workplace pension to help fund their retirement, the landscape is changing. “Not only are there fewer of us covered by workplace pensions, but there’s also a shift happening from defined benefit plans—which specify the fixed pension amount an employee will receive upon retirement—to a defined contribution (DC) model where retirement income depends on how much is saved and how the contributions are invested. In a DC plan, there’s no guarantee of the amount you will receive in retirement.”

He also observes that even if someone is part of a workplace DC plan, they still need to ensure that contributions are invested according to risk tolerance, time horizon and retirement objectives. Buttigieg says that it makes sense to diversify retirement investments, and to identify and build up other sources of retirement income.

The study also identified sources of income, outside of the CPP and QPP, that Canadians plan to use to fund their retirement. These include:

  • Personal savings, such as RRSPs, TFSAs, etc. (88%);
  • Part-time jobs (59%);
  • Sale of home or property (49%);
  • Inheritance (40%);
  • Hoping to win the lottery (34%, with 14% relying heavily on this possibility); and
  • Support from family and/or children (28%).

“To those hoping to win the lottery to fund their retirement, the odds of actually winning are approximately 1 in 14 million. A much better bet would be to develop a personal retirement savings and investing plan, then start contributing as early and as often as possible to your RRSP,” concludes Buttigieg.

More information on Canadians saving for retirement is available here.

Benefits January 30, 2014

Tips for Improving Plan Health, Participant Savings

January 30, 2014 (PLANSPONSOR.com) – Plan sponsors should take time at the year’s start to evaluate the health of their retirement plans, as well as see how they can encourage greater retirement readiness among participants.
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“A financially secure retirement is the result of long-term planning,” says Moneesh Arora, senior vice president and general manager of ADP’s Retirement Services division, based in Roseland, New Jersey “There is no better time to get started than today.”

For plan sponsors, especially small business owners, ADP offers the following tips to improve their plans:

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  • Conduct a due diligence analysis of plan fees;
  • Audit the administrative tasks you must complete as a plan fiduciary;
  • Update your fiduciary file. Document minutes of investment committee meetings and service provider due diligence searches;
  • Establish and/or review your investment policy statement;
  • Consider developing an employee education policy statement;
  • Conduct a plan health review to examine plan savings rates, by gender and age, and to understand how participants are allocating their savings;
  • Optimize your plan by offering automatic options such as automatic enrollment, automatic rebalancing and automatic deferral increases;
  • Leverage technology and social communication channels to engage employees;
  • Review compliance testing results to make sure there are no unwelcome surprises in 2014; and
  • Consider implementing or increasing employer contribution matching to increase employee enrollment and saving.

ADP also suggests a few things plan sponsors can do to encourage employees to boost their retirement savings:

  • Create a savings mentality. It is especially important that they begin now, especially if they have no plan in place. Remind them that saving something is better than nothing, even if it means saving a small amount each pay period.
  • Encourage incremental increases. Suggest that employees boost their deferral rate this year. For example, if they were saving 4% of their salary in 2013, they could increase it to 5% this year.
  • Tell them how they can save more for retirement with the help of their employer. Remind employees if your plan provides employer matching contributions to their 401(k). Explain how much they should contribute in order to get this match.
  • Suggest they talk to a professional. ADP research shows that using a professional investment adviser improves an investor’s confidence level in retirement decisions. If your 401(k) plan provider offers this feature, urge employees to take advantage of it.
  • Remind employees to put their eggs in more than one basket. A solid, diversified investment mix is like a balanced meal—variety is best. Suggest to employees that they allocate their assets based on their investment risk profile, tolerance and goals.
  • Set reminders. Help employees stay on track by sending mid-year reminders for increasing their 401(k) contribution.
  • Tell employees to think about the basics. Help them make a list of their retirement goals and needs. They should ask themselves “Where will I live and how much will it cost?” and “How will I pay for health care?”
  • Help them mind the gap. Show employees how to determine how much money they will need in retirement and encourage them to revisit this process from time to time.
  • Remind them they may be eligible for a catch-up contribution. Employees over age 50 can put more money into their 401(k).

“Employers and their employees understand that retirement readiness can be as attainable for them as it can be for individuals employed at larger organizations,” Arora adds. “Whether you are administering a retirement plan or planning for your own financial future, resolving to make your retirement savings responsibilities a priority can go a long way in helping you secure a comfortable future.”

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