Employee participation in employer-sponsored retirement savings plans continues to be healthy, with room for improvement

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1 RELEASE Employee participation in employer-sponsored retirement savings plans continues to be healthy, with room for improvement Read the full report Watch Encouraging early enrolment Watch Promoting meaningful contributions Commissioned by Great-West Life, the 2013 Capital Accumulation Plan (CAP) Benchmark Report combines benchmark data with strategies to help employers position more employees to reach their retirement goals. Winnipeg, March 31, 2014 The 2013 Capital Accumulation Plan (CAP) Benchmark Report, entitled Understanding results to create desired outcomes, has found participation rates for eligible employees in voluntary defined contribution (DC) plans to be 81 per cent, and 61 per cent for voluntary group registered retirement savings plans (RRSPs). While these figures are healthy, when 20 per cent to 40 per cent of eligible employees are not participating in their voluntary workplace pension plans, we can see there is room for improvement, says Jeff Aarssen, Senior Vice-President of Group Retirement Services for Great-West Life. He suggests employers consider implementing mandatory enrolment as one strategy to increase employee participation. We know some sponsors shy away from mandatory enrolment because of the perceived increase in employer contributions associated with greater enrolment numbers, Aarssen says. Where cost is a concern, sponsors can adjust the matching formula to a lower amount, to offset higher participation rates. The formula can always be re-adjusted upward in the future, as resources allow. Without mandatory enrolment, many employees may be at risk because they haven t taken the first step to become members of the plan, adds Ken Millard, Vice-President of National Accounts for Great-West Life. This reluctance could be related to loss aversion, which refers to peoples tendency to place greater value on avoiding losses than on making gains, Millard explains. To overcome this natural tendency, he encourages sponsors to re-frame company matching contributions as being akin to an enhanced compound growth rate. If a sponsor matches 25 cents for every dollar a member contributes, that could be seen as an automatic 25 per cent rate of return, Millard says. That s a strong message to share with members who are loss-averse. The CAP Benchmark Report advocates for these and other plan design strategies and education techniques that contribute to a successful group retirement plan, explored in the sections on early enrolment, meaningful contributions, appropriate investment choices and the impact of withdrawals. The 2013 report is based on a survey of nearly 400 organizations offering a defined contribution (DC) or group registered retirement savings plan (group RRSP) to see what was working well and to identify critical areas for improvement and growth going forward. /2

2 - 2 - Read the full report here or watch the videos on Encouraging early enrolment and Promoting meaningful contributions. Survey methodology Managed by Rogers Publishing Ltd., the 2013 CAP Benchmark Report summarizes the results of updating plan sponsor profiles in the Canadian Institutional Investment Network, as well as the findings from an online survey. The report represents an unbiased view of Canadian group retirement market trends. Data was collected between February 1 and August 1, 2013 from 392 organizations offering a Defined Contribution (DC) plan or a group RRSP to their employees. In total, 335 respondents have a DC plan and 288 have a group RRSP. Results depend on the specific organizations that complete the survey, which vary from year to year. About Great-West Life Great-West Life is a leading provider of capital accumulation plans in Canada, administering more than 17,500* group retirement plans and over 1.3 million* members accounts. In the United States, Great-West Financial is the fourth-largest group retirement plan record keeper based on total participants, and Putnam Investments adds to the organization s North American presence in this market. * As at Dec. 31, end - For more information contact: Marlene Klassen, APR Assistant Vice-President, Communication Services Find Great-West Life on Facebook, Twitter, LinkedIn, Google+ and YouTube.

3 C A P B E N C H M A R K R E P O R T Understanding results to create desired outcomes SPONSORED BY

4 ABOUT Great-West Life Working in partnership with Great-West Life, your organization can help build a more secure financial future for your employees. Our easy plan administration and account management, superior services and customized plan features combine to create a plan that s right for you and your plan members. Great-West Life administers nearly one in three defined contribution retirement and savings plans, offering clients the support of Canada s largest network of group retirement specialists. Our clients benefit from first-class service and products, supported by a strong and stable organization that focuses on accuracy and dependability. Serving the financial security needs of more than 12 million people across Canada, Great-West Life and its subsidiaries, London Life and Canada Life, have more than $218 billion* in assets under administration. The companies assets under investment management in the pension and group savings marketplace exceed $37 billion.* Great-West Life and its subsidiaries are members of the Power Financial Corporation group of companies. In the U.S., our sister company, Great-West Life & Annuity Insurance Company, is the fourth-largest group retirement recordkeeper, with $179 billion US* in assets under administration. Together with our subsidiaries, we offer: Registered retirement savings plans Registered pension plans (defined contribution) Deferred profit sharing plans Simplified pension plans (available in Quebec and Manitoba) Non-registered savings plans Tax-free savings accounts Investment-only plans Every business situation is unique. We look forward to working with you to develop a plan as distinctive as your organization. *As of Dec 31, 2012

5 FOREWoRD A message from Great-West Life The 2013 Capital Accumulation Plan (CAP) Benchmark Report helps plan sponsors and advisors benchmark their plans against industry results so that they can position more members towards their retirement goals. With relevant results and expert analysis, plan sponsors and advisors can be equipped with the tools they need to create desired outcomes for members a retirement with adequate income. This year, we highlighted four strategies to a successful retirement program: Encourage early enrollment Promote meaningful contributions Provide appropriate investment choices Lessen the impact of withdrawals For decades, the formula for a successful retirement plan has been the same, but the question has always been how to get to that success. In this year s report, two industry experts tackle this challenge and demonstrate how to turn knowledge into actionable solutions. Ken Millard, vice-president, national accounts, group retirement services, Great-West Life Jennifer Mayrhofer, manager, marketing and communications, group retirement services, Great-West Life This report summarizes the results of updated plan sponsor profiles in the Canadian Institutional Investment Network (CIIN), in addition to an online survey fielded by Rogers Connect Market Research Group. Data was collected between February 1 and August 1, 2013, from 392 organizations offering a defined contribution (DC) pension plan and/or a group RRSP to their employees. Great-West Life is proud to offer the CAP Benchmark Report research each year. It s an important indicator of how far we ve come as an industry and identifies critical areas for improvement and growth going forward. Thank you to everyone who participated in this year s survey. The detailed information you provided will help us shape the future of capital accumulation plans in Canada. I wish all of our industry friends and colleagues every success in the year ahead. Robert J. Ritchie, executive vice-president, wealth management, Great-West Life

6 upfront A snapshot of CAPs in Canada Note that some response categories in this report do not add up to 100% due either to the rounding of numbers or questions that allowed respondents to provide multiple responses. ORGANIZATION DETAILS PRIMARY BUSINESS NUMBER OF EMPLOYEES 4% 6% 7% 10% 11% 62% 9% 11% 12% 21% 24% 23% 40% 10% 24% 13% 12% Corporation/ Private Enterprise Multi-Employer other union public university (Education) BASE: All respondents answering; n=392 Financial/Business Services ngo/non-profit/public Sector/Greater Public Sector Manufacturing Sector natural Resources services Sector/Hospitality transportation/ Communications/Utilities ,000+ BASE: All respondents answering; n=389 BASE: All respondents answering; n=299 Type of plan Market value of plan ($ Millions) Mandatory vs. voluntary Mandatory voluntary 59% 27% 15% $150 $100 $ % 75% 50% 70% 85% $50 $ % 30% 15% dc RPP Only Group RRSP Only dc RPP & Group RRSP 0 DC PLANS GROUP RRSP 0% DC PLANS GROUP RRSP BASE: All respondents answering; n=392 BASE: DC plans n=279; group RRSP n=207 BASE: All respondents answering; DC plans n=266; group RRSP n=150 Participation rate Mandatory voluntary 100% 96% 75% 50% 25% 0% 81% DC PLANS 91% 61% GROUP RRSP BASE: All respondents answering; DC plans, mandatory n=57, voluntary n=32; group RRSP, mandatory n=13, voluntary n=60 Target Date as Default 30% 20% DC GROUP RRSP 16% 28% 28% 23% 21% 10% 15% 10% 6% 8% 4% 0% BASE: Total respondents answering; DC plans 2009 n=167; 2010 n=202; 2011 n=225; 2012 n=308; 2013 n=257; group RRSP 2009 n=129; 2010 n=118; 2011 n=145; 2012 n=180; 2013 n=122 Average contribution rates Employee contributes Company contributes 6% 4% 2% 0% 4.4% 6.5% DC PLANS 3.9% 3.9% GROUP RRSP DC PLANS BASE: Those whose employees contribute to plan n=164; Group RRSP BASE: Company contributes to group RRSP; Employee contributes n=71; Company contributes n= CAP Benchmark report: Understanding results to create desired outcomes Canadian Institutional Investment Network

7 section 1 Encourage early enrollment RESULTS The surveyed organizations reported an average of 1,877 DC plan participants: 1,841 active and 36 terminated or retired. The participation rate among eligible employees, a statistic we re reporting for the first time this year, was 91%. This breaks down to 96% for mandatory plans and 81% for voluntary plans. On the group RRSP side, the surveyed organizations reported an average of 1,402 plan participants: 1,384 active and 18 terminated or retired. Their participation rate among eligible employees was 65%, or 91% for mandatory plans and 61% for voluntary plans. When do employees become eligible to participate in their plans? A significant number of plans (38% in the DC-plan world and 53% in the group-rrsp world) offered immediate eligibility. However, many plans still required a waiting period of three months or more before allowing employees to participate. Interestingly, among DC plans this year, organizations with fewer than 500 employees overtook those with more than 500 employees when it came to offering immediate eligibility. In 2012, 20% of smaller organizations and 41% of larger organizations let DC plan participants sign up right away. In 2013, the responses shifted to 39% of smaller organizations and 32% of larger organizations offering immediate eligibility. On the group RRSP side, in 2012, 48% of smaller organizations and 63% of larger organizations let their participants sign up right away. In 2013, 49% of smaller organizations and 57% of larger organizations offered immediate eligibility. ANALYSIS by Ken Millard Myopia, the natural tendency for people to place a higher value on an immediate reward over one that occurs in the distant future, creates a challenge for plan sponsors who want to encourage early enrollment.* It accounts for why people who are closer to retirement tend to pay more attention to retirement planning than a 20-year-old who has the most to gain *Shlomo Benartzi: Save More Tomorrow Canadian Institutional Investment Network 2013 CAP Benchmark report: Understanding results to create desired outcomes 5

8 figure 1 Eligibility to participate dc Group RRSP 50% 53% 40% 38% 30% 20% 10% 0% 25% 20% 18% 14% 11% 6% 4% 6% 4% 1% IMMEDIATELY 3 MONTHS 6 MONTHS 12 MONTHS 24 MONTHS OTHER BASE: All respondents answering; DC plans 2013 n=265; group RRSP n=143 from investment returns and compound growth. Of course, making plans mandatory and decreasing the member wait time to join reduces barriers. A great way to motivate members to enrol early in their plans is to reinforce and educate members about the power of compound growth. Many tools are available to help members understand the benefits of early and consistent plan contributions. A very simple example illustrates how starting early can make a huge difference. Assume a 25-year-old plan member deposits $1,000 annually over a 40-year working career. Then contrast that person s savings to someone delaying contributions until age 45 but then doubling up their savings to $2,000 annually. In both cases, the same total of $40,000 is invested. Most plan members would be surprised to discover the 25-year-old will achieve an account balance at age 65 that s 83% larger (assuming a 5% annual growth rate). In fact, the 45-year-old new hire would, in many cases, need to quadruple the investment to achieve a similar account balance at age 65, assuming the same annual growth rate. This example is just one way to deliver a very powerful message that needs to be emphasized at the date of hire. To further educate members about compound growth, sponsors can help by sharing educational resources, such as videos that can be CAP Benchmark report: Understanding results to create desired outcomes Canadian Institutional Investment Network

9 figure 2 Investing early versus delaying CONTRIBUTES $1,000 ANNUALLY commencing at 25 years of age CONTRIBUTES $2,000 annually commencing at 45 years of age $125,000 $100,000 $75,000 $50,000 $25,000 $ PARTICIPANT AGE Assumption: 5% annual growth rate found on our YouTube channel, and illustrations. The reluctance to participate can also be attributed to loss aversion, which refers to the tendency for people to put more value on avoiding losses than on making gains.* Plan members who experience loss aversion may need to re-frame their perception of the company match as more of an enhanced compound growth rate. If a sponsor matches 25 for every dollar their member contributes, it can be seen as a 25% rate of return. That s a strong message to share with members who are loss averse. section 2 Promote meaningful contributions RESULTS Over the past five years, the percentage of DC plans that allow employee contributions has moved gradually higher, from the high 70s into the low 80s. In 2013, the number stood at 82%. And how many members are contributing to their DC plans? This year s research shows that 77% of *Shlomo Benartzi: Save More Tomorrow Canadian Institutional Investment Network 2013 CAP Benchmark report: Understanding results to create desired outcomes 7

10 mandatory plans allow employee contributions. There was no significant difference in employee contribution rates from smaller and larger companies in 2013, or the previous five years. figure 3 Does the employee contribute to the DC pension plan? YES NO 80% 76% 79% 83% 84% 82% 60% 40% 20% 25% 21% 18% 16% 18% 0% BASE: All respondents answering; 2009 n=192; 2010 n=228; 2011 n=246; 2012 n=283; 2013 n=268 figure 4 Does the company contribute to the group RRSP? YES 54% 50% 46% 40% 52% NO 48% 56% 44% 44% 56% 58% 42% 30% 20% 10% 0% BASE: All respondents answering; 2009 n=109; 2010 n=137; 2011 n=156; 2012 n=154; 2013 n=147 Meanwhile, over the past five years, the percentage of companies that contribute to a group RRSP has vacillated from the 40s into the 50s and back again, but reached a high point of 58% in This year, 96% of companies contributed to mandatory group RRSPs and 53% of companies contributed to voluntary group RRSPs. Organizations with fewer than 500 employees were more likely to contribute to group RRSPs 70%, compared to 49% of organizations with 500 or more employees. This is a trend we ve seen in previous years, but it was more pronounced in CAP Benchmark report: Understanding results to create desired outcomes Canadian Institutional Investment Network

11 In an environment increasingly focused on outcomes meeting specific replacement ratios for sufficient retirement income contribution amounts matter more than ever before. One result that stands out from the 2013 survey is that company contributions to DC plans have been increasing, reaching an average of 6.5% of an employee s salary in 2013, up from 4.6% in Companies with fewer than 500 employees reported slightly higher company contribution rates than larger companies (6.2% vs. 5.7%). The financial and business services sector reported the highest average company contributions, at 7.3%. On the other hand, employee contributions to DC plans have remained relatively stable over the past five years, sitting at an average of 4.4% in figure 5 Contribution levels by industry type Employee contributes DC Plans Public Sector/Greater Public Sector/Non-Profit (n=42/46) Natural Resources (n=12/19) Financial/Business Services (n=35/42) Transportation/ Communications/Utilities (n=19/25) Services Sector (n=13/19) Manufacturing Sector (n=42/25) Company contributes 4.8% 4.3% 4.6% 4.6% 4.4% 4.7% 4.3% 5.0% 4.1% 4.7% 6.0% 7.3% Group RRSP Public Sector/Greater Public Sector/Non-Profit (n=12/15) Natural Resources (n=14/13) Financial/Business Services (n=19/18) Transportation/ Communications/Utilities (n=8/6) Services Sector (n=8/9) Manufacturing Sector (n=10/9) 3.9% 3.8% 3.9% 4.3% 3.6% 3.6% 3.9% 5.1% 4.1% 3.4% 4.1% 3.8% BASE: Those whose employees contribute to plan Canadian Institutional Investment Network 2013 CAP Benchmark report: Understanding results to create desired outcomes 9

12 figure 6 DC Plans 6% 4% Employee and company contributions as a percentage of employee salary Employee contributes 4.5% 4.6% 4.6% 5.0% 4.2% 4.8% 4.5% Company contributes 5.6% 4.4% 6.5% 2% 0% Group RRSP 7.6% 6% 4% 4.3% 3.8% 5.1% 3.9% 3.8% 4.3% 3.8% 3.9% 3.9% 2% 0% DC PLANS BASE: Those whose employees contribute to plan, 2013 n=164; GROUP RRSP BASE: Company contributes to group RRSP, 2013 n=71 Figure 7 Does your plan provide DC Group RRSP Information 93% 92% Education 81% 81% Advice 48% 48% BASE: Total respondents answering; DC plans n=277 ; group RRSP n= , with no significant differences based on company size or sector. Company contributions and employee contributions to group RRSPs have also been fairly stagnant over the past two years, both at an average of 3.9% in In this case, the transportation, communications and utilities sector reported the highest average company contributions, at 5.1%. One way to encourage employees to invest more in their plans is to tie company contributions to employee contributions, yet just 36% of DC plans and 51% of group RRSPs used employee contributions as a factor when calculating company contributions. As a point of comparison, 79% of DC plans and 47% of group RRSPs based company contributions on an CAP Benchmark report: Understanding results to create desired outcomes Canadian Institutional Investment Network

13 Figure 8 Basis for company s plan contribution DC Group RRSP Employee s Earnings 79% 47% Employee s Contributions 36% 51% Years of Service 20% 14% Company s Earnings 1% 4% OTHER 7% 10% BASE: Those whose companies contribute to plan; DC plans n=255 ; group RRSP n=126 employee s earnings. A further 20% of DC plans and 14% of group RRSPs based company contributions on years of service. Very small numbers (1% of DC plans and 4% of group RRSPs) tied company contributions to the company s earnings. That said, over the past five years, the trend has been towards using multiple factors to determine company contributions. ANALYSIS BY Jennifer Mayrhofer Inertia, when plan members are resistant to change and prefer the status quo, especially when change requires a lot of effort, affects contribution rates.* For both DC plans and group RRSPs, when employees have a contributing component, it s critical that they clearly understand their responsibilities and their roles in the retirement outcome created. In general, members tend to contribute only as much as their employer is willing to match. This behaviour persists, even though there are many easy-to-use, interactive tools that can provide members with a means to estimate their outcomes based on their personal financial situations and select a contribution rate that matches their retirement income needs. To avoid member inertia and help members establish meaningful contributions, employers should consider educating members on their responsibilities, increasing employer contributions so members match, or making employee contributions mandatory. Once set, inertia will often cause members to maintain the status quo rather than increase their contributions. Sponsors can consider creative solutions that escalate member contributions. They could ask plan members to commit to increasing *Shlomo Benartzi: Save More Tomorrow Canadian Institutional Investment Network 2013 CAP Benchmark report: Understanding results to create desired outcomes 11

14 their contributions at a later date, thus leveraging the member s tendency to procrastinate. Example one: Members can choose to automatically increase their contributions any time they receive a pay increase. To achieve optimal success with this solution, Shlomo Benartzi, a thought leader in the field of behavioural finance and author of Save More Tomorrow, suggests it s best if only a percentage of the member s pay raise is allocated as a contribution increase (e.g., if a member is scheduled to receive a 5% pay increase, set the contribution increase to only 3%; the remaining 2% would then be perceived as an increase in take-home pay). This strategy will allow members to see their take-home pay increase even as their contributions increase, which is easier to accept than a deduction due to increased savings. Example two: Members specify a time in the future when they d like their contributions to increase. January is an ideal month to leverage people s inclination to make resolutions to improve their health and financial wellbeing, according to Benartzi. section 3 Provide appropriate investment choices RESULTS The survey results showed that the vast majority of plan members participants in 90% of DC plans and 98% of group RRSPs had the ability to make their own investment decisions. The average number of investment options offered was 18 in DC plans and 21 in group RRSPs. These numbers have been relatively stable over the past five years. Compared to five years ago, DC plans now offer a higher percentage of target date and target risk asset allocation funds. In 2013, these investment options had found a place in 32% and 20% of DC plans, for target date and target risk funds, respectively. Interestingly, group RRSPs have also embraced target date funds in greater numbers since 2009, with 24% offering them in 2013; but target risk funds saw a decline this year to 17% from percentages in the 20s for the previous four years CAP Benchmark report: Understanding results to create desired outcomes Canadian Institutional Investment Network

15 Figure 9 DC Plans 30% 25% 20% 15% 10% 5% 0% Group RRSP Target date and target risk funds in DC plans and group RRSPs Target Date 12% 11% 17% 16% Target Risk 24% 22% 25% 19% 32% % 30% 25% 20% 15% 10% 5% 0% 20% 21% 27% 29% 24% 25% 24% 22% 16% 17% BASE: Total respondents answering; DC plans 2009 n=180; 2010 n=274; 2011 n=263; 2012 n=308; 2013 n=339 ; group RRSP 2009 n=129; 2010 n=185; 2011 n=196; 2012 n=180; 2013 n=288 Figure 10 Default investment options in DC plans and group RRSPs DC Plans Group RRSP 6% 4% 4% 2% 4% 5% 10% 30% 21% 3% 8% 17% 15% 19% 28% 25% balanced Target Date Asset Allocation Money Market target Risk Asset Allocation Cash/Daily interest Combination Target Date/ Target Risk Asset Allocation GIC other BASE: Total answering; DC plans n=257 ; group RRSP n=122 Canadian Institutional Investment Network 2013 CAP Benchmark report: Understanding results to create desired outcomes 13

16 Figure Investment options availability DC Group RRSP Canadian Bonds Canadian Equity, Active Balanced U.S. Equity Global Equity Money Market GIC Canadian Equity, Index Target Date Asset Allocation EAFE Equity Cash/Daily interest Target Risk Asset Allocation Real Estate Combination Target Date/ Target Risk Asset Allocation 13 7 Mortgages 9 8 Foreign Bonds 9 7 Alternative Investments 6 3 High Yield Bonds 5 5 Real Return Bonds 2 4 Employer Stock 2 2 Other 6 3 BASE: Total respondents answering; DC plans n=339 ; group RRSP n=288 Another major change this year was a dramatic decrease in the number of group RRSPs offering almost every investment option, from Canadian bond and money market funds to balanced and equity funds. The top three choices for default funds are different for DC plans and group RRSPs. In 2013, DC plans favoured balanced funds (30%), target date funds (28%) and money market funds (15%), while group RRSPs favoured target risk funds (25%), target date funds (21%) and money market funds (19%). Over the past five years, money market funds have become a significantly less popular default fund option: in 2009, they were the default in 28% of DC plans and 33% of group RRSPs. Meanwhile, for group RRSPs, balanced funds have almost fallen off the radar as the default option, at just 3% in CAP Benchmark report: Understanding results to create desired outcomes Canadian Institutional Investment Network

17 How many investments do plan members hold? For DC plan members, the mean was 3.4, with a maximum of 20. For group RRSP plan members, the mean was 4.0, with a maximum of 31. The means have remained relatively stable since ANALYSIS by Ken Millard Sponsors are providing default fund options that take members respective ages and risk tolerances into consideration. These default fund options include target date funds that self-adjust depending on the individual s risk profile and retirement time horizon. In the past, default investments were meant to be a short-term holding place for contributions until members decided where they d like to invest. However, members tend to forget, or avoid, making definitive choices. If the default option is a low-return investment, such as a money market fund, not only is the member not diversified but also at risk of not producing enough retirement savings, due to returns that may barely keep up with inflation. We continue to encourage plan sponsors to consider the use of asset allocation products, particularly target date funds, within their retirement plans. Behavioural finance findings, such as Trading Is Hazardous To Your Wealth: The Common Stock Investment Performance of Individual Investors by Brad M. Barber and Terrance Odean, continue to show that members who make their own investment choices tend to underperform when compared to either professionally managed investment options, such as target date funds, or even passively managed indexed options. In addition, studies show plan members who make their own investment decisions in more of an à la carte fashion frequently change funds in an effort to chase performance. Strategies of this nature generally produce very unsatisfactory results for members, compared to the positive outcomes usually obtained from professionally managed investment choices. When considering adding investment choices, plan sponsors should work with their advisor or consultant to choose a menu that can accommodate plan members risk tolerances and investment personalities. They should also consider reducing and challenging the number of investment options being offered. For example, since funds in the same asset class have the same objectives and perform similarly, plan sponsors should consider selecting one of each instead of five balanced funds. This simplifies the investment decision-making process for members who otherwise may be overwhelmed by too many selections, and procrastinate enrolling in their plans. Canadian Institutional Investment Network 2013 CAP Benchmark report: Understanding results to create desired outcomes 15

18 section 4 Lessen the impact of withdrawals RESULTS When plan members withdraw savings from a DC plan or group RRSP before they retire, they may end up with a lot less money than they need to finance their retirement lifestyle. It s important to fully engage employees in their retirement plans to minimize withdrawals. One measure of engagement is the extent to which employees are motivated to maximize their contributions to achieve the highest possible company match. Nearly three-quarters of both DC plan (73.5%) and group RRSP (73.1%) members did this in 2013, with average numbers a bit higher at smaller companies (75.5% for DC plans and 78.3% for group RRSPs) than at companies with more than 500 employees (65.1% for DC plans and 62.3% for group RRSPs). Other plan-design elements that may enhance employee engagement include making participation mandatory, and automatically escalating employee and company contributions. The vast majority of organizations with voluntary DC plans (93%) and group RRSPs (98%) were not considering implementing mandatory participation in the next year. These numbers have been stable over the past five years. Not one organization without auto-escalation was considering implementing this feature in the next year, again, with little change over the past five years. Just 18% of DC plans and 8% of group RRSPs currently offer auto-escalation. Employee engagement may also increase when plan members receive sound information, education and advice. The percentages of organizations providing these three elements are virtually identical, whether an organization offers a DC plan or a group RRSP. Perhaps the strongest deterrent to early withdrawals is advice and there has been a small shift upward compared to five years ago. In 2013, 48% of both DC plans and group RRSPs offered access to a third-party financial advisor, or recommendations on investment strategy personalized to a member s specific situation, needs and long-term goals. In 2009, the numbers were 39% for DC plans and 45% for group RRSPs. Smaller organizations were more likely to offer advice, with the difference more pronounced for DC plans than for group RRSPs. Specifically, 56% of CAP Benchmark report: Understanding results to create desired outcomes Canadian Institutional Investment Network

19 companies with fewer than 500 employees offered advice with their DC plans, compared to 42% of companies with 500 or more employees. Meanwhile, 48% of companies with fewer than 500 employees offered advice with their group RRSPs, compared to 44% of companies with 500 or more employees. ANALYSIS BY Jennifer Mayrhofer Members place more importance on their immediate needs and discount the importance of their future. Awareness of consequences should be top of mind when members consider making withdrawals. A simple calculation, demonstrated at the time a member considers a withdrawal from their retirement plan can help members understand what they stand to lose. For example, if a 40-year-old member wanted to withdraw $20,000 to buy a new car, they forfeit a potential of $91,000 at age 65 due to that single withdrawal. This also has a major impact on a member s retirement income. A $91,000 loss in potential retirement savings is equal to a $380 reduction in monthly payments throughout that member s retirement. If members don t have the experience or knowledge to make appropriate decisions for their future financial well-being, plans should be designed to lower the chance of unfortunate missteps. figure 12 Significance of a $20,000 withdrawal at age 40 NO WITHDRAWAL $20,000 WITHDRAWAL AT AGE 40 $600,000 $500,000 Assumes 2+2% contribution, 6% return, 2% salary increase per year $91,000 $400,000 $300,000 $200,000 $100,000 $ PARTICIPANT AGE Canadian Institutional Investment Network 2013 CAP Benchmark report: Understanding results to create desired outcomes 17

20 Conclusion Turn insights into action We hope plan sponsors across the country will treat the CAP Benchmark Report as a starting point to strengthen their capital accumulation plans and enhance the future financial security of their employees. To summarize, here are some concrete strategies to consider, many of which require no financial commitment from employers. Encourage early enrollment Provide concrete examples of the power of compound growth and share relevant illustrations and videos Position company match not only as a contributor to compound growth but also as an attractive rate of return Promote meaningful contributions Make sure members understand that they are responsible for creating their desired retirement outcome Consider boosting the company match to give employees greater incentive to increase their contributions Encourage members to commit to automatic contribution escalation whenever they receive a pay increase or on specific dates (e.g., every January) Provide appropriate investment choices Set diversified, professionally managed asset allocation funds, such as target date funds, as the plan s default investment option Select a streamlined menu that can accommodate members risk tolerance and investment personalities and simplifies decision-making Lessen the impact of withdrawals Educate members about the consequences of pre-retirement withdrawals on their monthly income in retirement Think about incorporating barriers to early withdrawals in the design of the plan CAP Benchmark report: Understanding results to create desired outcomes Canadian Institutional Investment Network

21 Our objective at Great-West Life is parallel to yours. Like plan sponsors, we want to help ensure that employees who are privileged to have capital accumulation plans through their employers take full advantage of the opportunity to build savings to support their lifestyle in retirement. We encourage you to work closely with us and with your advisor to maximize the benefits your members get from their plan which, in turn, will optimize the attraction and retention benefits you get from it, too. This supplement is published by Rogers Publishing Ltd., One Mount Pleasant Road, 7th Floor, Toronto, Ontario M4Y 2Y5. Telephone: (416) ; Fax: (416) No part of this publication may be reproduced, in whole or in part, without the written permission of the publisher. Copyright 2013 Canadian Institutional Investment Network 2013 CAP Benchmark report: Understanding results to create desired outcomes 19

22 Your Group Is Like No Other. So Are Our Group Retirement Services. Whatever kind of group you have, they expect a lot of you. Fortunately, Great-West Life is completely committed to accountability and providing superior, reliable group retirement services. What s more, our regional experts work with you to provide strong local support. So we re truly the ideal partner. After all, you d never want to disappoint a group as unique as yours. Retirement solutions that never stop working Great-West Life, the key design and Retirement solutions that never stop working are trademarks of The Great-West Life Assurance Company. Western region Dan Carpick dan.carpick@gwl.ca Central region John Stevenson john.stevenson@gwl.ca Eastern region Anthony Cardone anthony.cardone@gwl.ca