By Chris Forman

1. Give them what they ‘really really want’…
In deference to the Spice Girls, survey after survey confirms that employees want face-to-face personal financial advice at work, and for good reason. “Four in 10 employees admit that financial stress is a distraction at work,” says Jennifer Douglas, associate research director at LIMRA. Most people do not have a financial plan, and a large percentage are not saving for emergencies and/or retirement. In fact:

• 68 per cent don’t have a financial plan;
• 67 per cent don’t have a monthly budget;
• 42 per cent have no rainy day savings; and
• 40 per cent aren’t saving for retirement.

Moreover, seven out 10 people are affected by daily stress caused by personal finance issues which require an employee’s time and attention and/or consumes their thoughts. Additionally,:

• 42 per cent said household finances caused “somewhat high” or “very high” stress levels compared to other areas of their lives; and
• 29 per cent said personal health and work issues were sources of high stress.

Advisers can help lower that stress.

“Consumers with the highest stress levels are looking for basic financial education like budgeting, reducing debt and understanding employee benefits,” Douglas says. “Effective financial wellness programs should address these fundamental topics, as well as retirement planning and other long-term interests.” (Source: Financial Triage: Assessing Consumer Wellness, LIMRA)

More than half (52 per cent) of Americans said that want their employer to offer no-cost financial advice as part of the benefits package and those who have received advice, clearly understand the role it plays in getting to and through retirement successfully. Of those who received advice, 86 per cent sought out advice related to retirement, up from 81 per cent last year and 71 per cent in 2012. (Source: 2014 TIAA-CREF Advice Matters)

Do your plan members want/need advice? It’s definitely a good question to ask!

2.  ORPP: Slayed Dragon or Sleeping Giant?
If the new proposed Ontario Retirement Pension Plan passes, it will go into effect on January 1, 2017. It will require Ontario employers and employees to contribute 1.9 per cent of earnings to an administrative agency who will invest the contributions. Retirement benefits paid under the ORPP will depend on the number of years the employee contributed to the plan and the employee’s earnings. Payable for life with benefits indexed for inflation, under the proposed ORPP legislation, contributions will not be required by, or on behalf of employees, who participate in a “comparable workplace pension plan.”

Ontario has said a ‘comparable plan’ can be either a Defined Benefit pension plan (DB)  or Defined Contribution Pension Plan (DCPP) with a total contribution of eight per cent or more (minimum four per cent employer and four per cent employee)

However there are still reasons to wait before considering any changes to your plan for any Ontario based employees.  While Ontario is making this look like a done deal, Premier Wynne has recently indicated the province will not implement the ORPP if the newly elected Federal Liberal government enhances the Canada Pension Plan (CPP) as per their election promise. Stay tuned!

3. Are “fat government’ pensions on the ropes?
Effective January 1, 2014 public sector employees in the province of New Brunswick no longer have a guaranteed pension benefit. In a ground-breaking piece of legislation, New Brunswick introduced Shared Risk Plans (SRP). This means that for public sector employees (police, firemen, teachers, nurses etc.)  in New Brunswick chronic poor investment or experience results could mean lower than expected pension benefits at retirement

On February 24, 2014, the government of Alberta announced plans for significant changes to four of the largest public sector pension plans in the province. The changes adopt some aspects of target benefit and shared risk pension plans, including the removal of guaranteed indexing for public sector retirees. Current early retirement subsidies and cost of living adjustments (“COLA”) will be changed for benefits earned on or after January 1, 2016.

While no other public sector pension systems have followed New Brunswick’s lead at this point, almost all (including BC) have amended their pension legislation to allow this type of plan, can an SRP be far behind?

4. BC Rules
While no one disputes BC is great place to live and work, we’re referring to the recently introduced BC Pension Benefits and Standards Act, and what these changes mean to you, the plan sponsor.

The act and regulations take effect Sept. 30, 2015. Pension plan amendments must be filed before Jan. 1, 2016, to comply with the act’s new requirements. However, pension plans must be administered in accordance with the act beginning Sept. 30, 2015.

Here are the legislation’s key features:

• Immediate vesting and locking-in of contributions are based on a dollar threshold. Members can request an amount be unlocked if it falls below 20 per cent of the year’s maximum pensionable earnings (YMPE). In 2015, the YMPE is $53,600,
• Partial plan terminations and the requirement to file a partial plan termination report are eliminated,
• The default fund for member-directed investments must be a balanced fund or a target date fund. This new default option must be put in place before June 28, 2016; and
• Plan sponsors must establish a written governance policy.

If you have not taken action yet, time is running out
 
5. Do you know what your fees are?
“Plan fees, there are fees? I don’t pay no stinkin fees…” With apologies to Mel Brooks and all the cast of Blazing Saddles, fees are probably the single most important aspect of your employer sponsored retirement plan (after contribution level) and yet do you know what they are? If you don’t (and even if you do), I would fall off my chair if one of your plan members knew what fees they were paying.

Why doesn’t anyone know or seem to care?
In Canada fees are typically embedded into the Investment Management Fees (IMFs) of the investment funds offered on the plan. This isn’t necessarily bad, its just no one sees them and consequently they don’t know they exist. Out of sight, out of mind.

Boeing, Edison, Lockheed Martin, among others, have been in court this year defending the fees charged on their 401(k) plans, all have lost their case. In all cases the judges called for a comprehensive, third party, periodic, review of fees associated with the plan to ensure the fees are both competitive and appropriate. It is true this type of legal action has yet to cross the border into Canada however it also true that what happens in the US eventually comes here.

What then, is to be done? Have an experienced firm (not the plan provider!) come in so you know where you stand:

• audit your plan,
• market the plan and negotiate new fees
• Have the investment fund line up reviewed for both fees and appropriateness
• Have your plan design benchmarked against your competitors and the pension universe as whole

Chris Forman is managing director of Porchlight Financial.