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It’s been almost two years since March 2009, when the stock mar-ket began to recover. While equity markets continue to slowly regain ground lost during the recession, the Canadian workforce has, generally, stopped furiously checking account statements as retirement savings have started to bounce back. Plan sponsors are starting to feel less pressure too — fears of economic ruin have subsided and it’s clear that savings haven’t been wiped out. With the economy still on shaky ground, though, now’s the time for defined contribution ben-efit sponsors and administrators to improve their services and help bat-tered members prepare for a healthy financial future.

Social mediaPlan administrators are looking at a number of ways to better serve members. For Sue Reibel, senior vice-president with group retirement solutions at Manulife Financial, com-munication is one area that’s high on the priority list. “Many sponsors look to us to help them reach mem-bers effectively,” she says. Even after the recession, engagement is still lower than where many sponsors want to be, which is why a number of com-panies are actively discussing ways to use social media and mobile applica-tions to communicate with members. Manulife has teamed up with televi-sion host and personal finance author Gail Vaz-Oxlade for a Facebook ses-sion where members can ask the financial expert questions. While the conversation will be fairly general in the Facebook session, plan sponsors may choose do something more spe-cific with their own plan members using these multimedia tools. “Social media can be used to spark questions,” Reibel says, “It can get people thinking if they’re asked how much they’ll need in retirement or what a dollar put away now means in 20 years.”

Tom Reid, Sun Life Financial’s senior vice-president of group retirement ser-vices, says technology, including social

media and mobile will allow sponsors to personalize communication with members and that one-to-one dia-logue, he says, is critical. “The call to action won’t say ‘Dear member’ any-more,” he says. “It will capture some details of the person and reflect per-sonal circumstance.” Personalization is already happening — the technology allows us to send out documents with information and graphics reflecting a person’s life stage (“we don’t show a 25-year-old person entering the work-force a picture of a couple nearing retirement,” says Reid). And interac-tions will get more intimate as provid-ers develop mobile apps. People will be able to file paperless claims, review bal-ances, check investment performance

and more. Reid says “You’ll be able to review accounts and have transac-tional capability.”

Mobile communication does pres-ent some challenges. Eric Filion, Desjardins’ vice-president of prod-uct, says retirement is long term, while apps are often used to accom-plish something in the present. “You don’t want members to react every minute to investment news,” he says.

“Retirement is a process.” To keep the focus on planning, he says the apps should be less about investments and more about education. “Develop tools that will help them understand their retirement plan so they can take con-trol,” he says.

It’s likely pension-related apps will be available for download sooner than later — Sun Life plans to introduce one in 2011. But it’s still not clear how spon-sors can use Facebook or other social media platforms effectively. “Waiting for members to come to a website is not usually the best method,” says Paul Sywulych, vice-president of solution architecture at Morneau Sobeco. He’s more partial to sending out e-mails that will land directly in a member’s

inbox. His colleague, Idan Shlesinger, managing partner of DC solutions, says whether or not Facebook becomes a main communication tool is still an open question. He says the problem with Facebook is that many of the decision makers aren’t social media experts. “I don’t use Facebook,” he admits, “but it seems like everyone is on it so it should be used, but how exactly is still unclear.”

“ Waiting for members to come to a website is not usually the best method.”—Paul Sywulych, vice-president, solution architecture, Morneau Sobeco

4 Retirement Trends: The future of DC Sponsored supplement

Confidentiality is also an issue. “Social media is not necessarily the safest place to do certain things right now,” says Claude Leblanc, senior vice-president, group savings and retirement for Standard Life. In order to make the social media platform effective, he says, people have to feel safe and comfortable. While it’s not clear how personal information can be protected in a way that facilitates open dialogue about someone’s spe-cific plans, social media sites still can’t be ignored. Leblanc thinks places like Facebook and Twitter could be used to attract interest in retirement plan-ning, investment solutions and pro-vide educational information. He’s also well aware that social media isn’t going anywhere and, if the privacy concerns can be addressed, it could be a powerful communication method for sponsors and service providers. “The most powerful uses in social media,” he says, “are their sharing and listening capabilities.”

Using social media as a sharing platform, Leblanc explains, allows members to exchange experiences and discuss them with each other. This creates a great opportunity for sponsors and service providers to understand and address members’ concerns. Listening gives sponsors the opportunity to find out what mem-bers are saying and receive instant feedback. “That’s a tool that can pro-vide a strong dialogue,” he says.

Jeff Aarssen, vice-president of group retirement services distribution, says Great-West Life continues to build social media and mobile phone appli-cation enhancements into product offerings such as an online calculator accessible by BlackBerry or iPhone that helps members see the impact of an increase in their retirement plan contributions.

Aarssen sees potential for plan spon-sors to use social media as a forum or “peer session” to talk to each other and share ideas, noting it could also become the preferred communication method for plan sponsors and members. “Social media presents opportunities for plan

sponsors to create links and messaging that’s succinct and powerful,” he says, pointing to Great-West Life’s educa-tional online videos as an example of how social media has influenced the company’s outreach to the “YouTube” generation.

InvestmentsRelaying the importance of saving for retirement won’t mean much if mem-bers don’t have an investment vehicle that will grow their money and protect

their savings. In the past members had myriad options, many of which were complicated and difficult to use. One of the positive trends Aarssen’s seen in the past few years is a simplification of fund offerings. According to the Benefits Canada 2009 CAP Benchmark Report, the average number of invest-ments held by defined contribution participants dropped from 5.1 in 2008, down to 3.3. “More often, spon-sors are keeping things simple to make the decision-making process for plan members as easy and appropriate as possible,” he says.

Streamlining options has been made easier by the introduction of target date funds. The funds, also called lifecycle funds, were originally introduced in the early '90s in the U.S. and automatically adjust a portfolio based on time horizon. The funds gained traction in Canada in the last few years and even more so post-recession. The advantage of target date funds, especially during a down-turn, is that members can simply choose their fund of choice and then leave it alone. “Many plan members rode out the storm because they didn’t panic — they left their money in their target date funds,” says Aarssen. “As markets bounce back, we’ve seen the returns recover fairly strongly.”

The downturn has put a spotlight on target date funds for two reasons: first, because these funds are effec-tive at addressing members’ changing risk profiles throughout their work-ing lives; second, because of the U.S. experience. The U.S. has more his-tory offering these funds and some had quite aggressive mandates. After the downturn, legislators and ana-lysts reviewed these funds to see if they were doing what was expected and offering effective portfolio mixes

“ Social media presents opportunities for plan sponsors to create links and messaging that’s succinct and powerful.”— Jeff Aarssen, vice-president, group retirement services distribution, Great-West Life

Great-West Life and the key design are trademarks of The Great-West Life Assurance Company (Great-West), used under licence by its subsidiaries, London Life Insurance Company (London Life) andThe Canada Life Assurance Company (Canada Life). Group retirement, savings and payout annuity products are underwritten by London Life and Canada Life respectively, and marketed and serviced by Great-West.

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that didn’t put members at undue risk. Canada didn’t face that issue the same way, Reibel says, “because we tend to be more conservative. Still, the aware-ness about ensuring that mandates

are appropriate has spilled over.” In fact, some fund companies are now offering risk overlays — the option to choose growth, moderate or con-servative portfolios plus the target date. Among the variety of target date funds Manulife offers is the Franklin Templeton Lifesmart portfolio. The funds in this portfolio offer a more aggressive investor with a 40-year time horizon, a portfolio of 90% equities and 10% fixed income. By the time retirement rolls around, the weight-ing shifts to 40% equities and 60% fixed income. By contrast, a conserva-tive investor would see a 70% equity and 30% fixed income blend at the start of a career evolving into a 20% equity and 80% fixed income alloca-tion by the end. The jury is still out on whether or not risk overlays will become the norm, but “it’s something that’s out there and being talked about. We’ll have to see if these prove simple enough for members to manage and if they gain traction,” says Reibel.

Standard Life believes in giving members options, including the abil-ity to rebalance their assets and life-cycle, following a specific glide path, multiple times. Its Avenue portfolios investment solution comes in three risk profiles — conservative, moder-ate and aggressive — and is adjusted five times during an employee’s career. Lifecycling begins when the member has 25 years left to work, changing every five years until the worker is 10 years from retirement. The fund also rebalances every quarter “so we can’t miss the target,” says Leblanc. He says the fund’s automatic rebalancing fea-tures prevented huge declines during the recession.

Filion agrees that soon every com-pany will offer target date funds, but he sees the industry moving to an “open architecture” format, where multiple managers are responsible for different

parts of a fund. Generally, one manage-ment team handles a fund, but, the the-ory goes, having the top large-cap man-ager handle the large-cap investments, while employing a small-cap manager to look after small-cap stocks, the fund will perform better. This method could also reduce MERs, as plan administra-tors would be allowed to shop around for the best managers at competitive rates. “We firmly believe that multi-management is key to providing flex-ibility that suits the client,” says Filion. “Plan sponsors benefit from healthy competition between fund managers and develop target date funds to meet the members’ needs.”

Target date funds have been suc-cessful in at least one area — keep-ing members invested. At the begin-ning of the financial crisis, says Reid, Sun Life was managing $35 billion in assets. We had less than 1/10 of 1% of DC assets moving between market based investments and guaranteed funds. “Member behaviour was quite

healthy,” he says. “They were not sell-ing at the bottom and getting back in after the market had already recov-ered.” That’s a sign that DC pensions work, says Reid. Members are getting the benefit of dollar cost averaging and they’re not trying to time the market. Target date funds make up almost $1.4 billion of our member assets, he adds, and have become increasingly impor-tant in making it easier for members to manage their investments.

While target date funds are becom-ing more popular, it’s not the only investment trend in the business. Robert Chepelsky, principal, asset consulting at Morneau Sobeco, says more funds are offering guaranteed income for life options. The income is based on a percentage of the assets accumulated at the time of retire-ment. If the markets rise, the yearly income can increase too. If the mar-ket drops the income will remain the same. Chepelsky thinks the option is “interesting but expensive.” In order to guarantee income, he says, fees have to be higher. The idea is still fairly new, so it’s possible fees could decrease as more investors buy into the plan, and if they do, Chepelsky thinks this type of pro-gram could take off.

Post-retirementWhen defined benefit plans were the norm, no one ever asked whether or not a sponsor had a responsibility to

“ We firmly believe that multi-management is key to providing flexibility that suits the client.”— Eric Filion, vice-president of product, Desjardins

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their employees after they retired. Members would get paid a monthly income and that was that. It’s a differ-ent story today, with more members buying in to DC plans. That’s brought up a pressing question for sponsors: do they need to look after members post-retirement?

“Post-retirement considerations are getting a lot of attention and will con-tinue to be an area of innovation within the retirement space,” says Reibel. “The question really comes back to what role the employer wants to play.” Sponsors, she says, are trying to determine where their responsibili-ties start and stop. On one hand they want employees to have a financially rewarding retirement, but many are worried about extending their liabili-ties and obligations to people who no longer work for the company. Reibel points out that this debate is still in its infancy; she estimates the industry is likely about 10 years away from seeing the first wave of retirees who have been in a DC plan for their entire careers.

Most recordkeepers agree that plan sponsors can best help employees by focusing on two things: first, by teach-ing employees how to save effectively while they’re in the accumulation phase; next, by helping them under-stand how to choose the appropriate payout option when they reach retire-ment. “The biggest investment will be in advice,” says Reibel. “An employ-er’s role will increase in terms of the planning support they provide in the pre-retirement period. This will have growing importance as the number of employees getting ready to retire from DC plans increases.”

Aarssen agrees. “Plan sponsors have overwhelmingly indicated they want someone to provide investment

selection advice to plan members, including at the decumulation or pay-out phase, when members are con-fronted with new decisions on how best to draw down their assets to provide retirement income while minimizing investment risk and longevity risk,” he says. Great-West Life responded with

services aimed at providing invest-ment selection advice while addressing the issue of sponsor risk.

However, companies will have to offer more than just financial help, says Filion, they’ll be discussing the psychological aspects of retirement as well. “We’ll have to make sure that participants not only retire, but retire happy,” he says. Creating an all-encompassing plan that takes into account the full scope of a member’s life will do more than simply assist the employee, says Filion, it will increase workforce engagement and help plan sponsors become more socially responsible.

Leblanc says planning has to become more tailored to the individual. He thinks companies need to do a deeper needs analysis to determine exactly how much someone will need once

they leave the workforce. “What do they want to do?” he asks. “Are they golf players? Do they travel? When we ask those questions we can align needs with proper allocation and tools.” Part of the process is finding out whether or not members feel comfortable invest-ing on their own. Some will want to be

in control of their savings, while oth-ers will want to leave it up to the pros. “Some folks will be active investors,” he says. “But it’s all about finding out capabilities, interests and mindsets.”

As important as pre-retirement planning will become, many sponsors understand that employees still need financial help — in the form of hard dollars — once they leave the work-force. As Chepelsky mentioned, some permanent income solutions, such as Sun Life’s My Money For Life program, already exist and can be added onto a target date fund, giving retirees a set amount of money until they pass away. It’s still a new concept, Reid admits, but it will catch on. “The big bulge of aging boomers is looking for retire-ment income solutions,” he says. Sun Life also has a team of advisors who can help members decide how to invest their savings after retirement, whether they choose their guaranteed retire-ment income program or not. Reid says the company’s advice arm has grown “dramatically” in the last four years and he expects his company, and others, to hire more advisors to help people transition their funds from a DC plan into another investment vehi-cle. “We don’t see a lot of limits on the upside potential for growth,” he says.

DiscussionAs plan sponsors and administrators attempt to make their own programs more suitable to today’s post-recession environment, a larger discussion on

pension plan reform is taking place in the hallowed halls of Ottawa. There are a lot of issues being discussed, all of differing importance to various organizations. Leblanc says the first step to reform is harmonization. Right now each province has its own regula-tor and that makes it difficult to push

“ Post-retirement considerations are getting a lot of attention and will continue to be an area of innovation within the retirement space.” —Sue Reibel, senior vice-president, group retirement solutions, Manulife Financial

“ What do they want to do? Are they golf players? Do they travel? When we ask those questions we can align needs with proper allocation and tools.”

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through change. “Pension regulation is too cumbersome,” he says. “The coun-try needs to harmonize and harmonize quickly.” Not only will reform be easier to pass if the country can speak with one voice, but it will reduce the cost of accessibility, says Leblanc, “and if it’s less expensive, employers will embark on programs that will really create safeguards for people.”

One change that almost all admin-istrators support is auto-enrollment. If employers have to opt out instead of opt in, many more Canadians would end up saving for retirement. “There is a definitely a trend toward auto-enrollment,” says Shlesinger. “As soon as they’re hired there is a deduction for employee contribution.” Employees will be able to get out of the plan if they choose, but they’ll have to be proactive. “That will mean a huge increase in participation rates for the program,” he says. Aarssen points out that auto-enrollment is one of the pen-sion design features Great-West Life proposed to the government as part of a 401 (Canada) plan which would recognize Group RRSPs as a formal plan type, along with auto-escalation of contributions. The United States’ Pension Protection Act, which was passed in 2006, has an auto-enrollment and auto-contribution escalation com-ponent and it’s worked — some studies say employee participation rates soar to more than 90% when members are automatically enrolled. “Anything we can do as an industry to help make those decisions easier — whether it’s auto-enrolment, reasonable contributions with auto-escalation, and getting peo-ple into reasonable investment choices like target date funds — would only help all stakeholders involved to help people achieve an appropriate retire-ment income outcome,” Aarssen says.

Auto-enrollment isn’t the only option being discussed. Shlesinger says the industry is also looking at mandating that contributions increase the closer someone gets to retirement. The Morneau Sobeco partner is a big proponent of this idea. He explains that while payments

into a plan will rise every year, so do salaries. Members will barely notice a difference on their paycheque.

There’s no question more Canadians need coverage, but it’s still unclear when — or if — reform will happen. Reibel thinks sponsors can help encourage the process along by getting more involved in the discussion. Until now, though, most sponsors haven’t spoken up. “There’s been a bit of a missed opportunity,” she says. “The majority of plan sponsors view reform as an issue dealing with people who don’t have access to a plan, but one important aspect of reform is looking at income adequacy and plan participa-tion.” She thinks employers can engage the government by talking about ways

to make plans more efficient and effec-tive. And, Reibel says, the government wants to hear from people on the ground. “Quite often they hear from industry groups, but they also like to talk to people who are actually part of companies and who are dealing with this on a day-to-day basis.”

“Some are engaged, but it depends on the sponsor,” adds Reid. He says the government has talked to employ-ers, advisors and consultants, and Sun Life itself, which has been active in the debate. The company holds meetings with a group of plan sponsors twice a year to talk about issues in the indus-try. They’ve been supportive of Sun Life’s position, he says. “Employers have some thoughts around how we can make plans more efficient and they’re on board with us highlighting the benefits of workplace-based sav-ings programs,” Reid reveals.

Desjardins is engaged in the discus-sion too, but like Reibel, Filion thinks it’s integral for sponsors to get more involved. “It’s of primary importance that they take part in this discussion,”

he says. “Sponsors need to make sure that they’re part of the solution.” He’s thrilled that the debate is hap-pening at least. However, he doesn’t think the system needs a major over-haul. “It’s not a complete rebuilding of the system,” he says. One area that Filion would like to see addressed is helping small businesses offer pen-sions through multi-employer plans. Currently, laws prevent self-employed Canadians and some small businesses from pooling money together into one multi-employer pension plan. Reid wants that changed. “There is a cov-erage issue,” says Reid. “Not enough Canadians are covered by workplace-based savings programs, but we think we can do it at a lower cost and do it

more efficiently than a new govern-ment-run start-up plan.” Governments across Canada have agreed.

“We were very encouraged to hear Minister Flaherty’s and the provin-cial finance ministers’ endorsement of private sector solutions as the most effective and efficient way to get more Canadians to save for retire-ment,” says Reid.

Whether the focus settles on advances in communication, more appropriate savings vehicles or increased retirement education, the still growing DC pension business is embracing the challenges that come with a struggling economy and an aging workforce. “The industry con-tinues to evolve,” says Reibel. “We’ve already seen a lot of progress, but we’re still innovating to solve for emerging issues.” It’s still early days in the pension reform debate and ulti-mately, says Leblanc, no matter how much input the industry gives, it’s up the politicians to make the final deci-sions. But whatever happens, it’s clear the industry is changing. n

“ There is a coverage issue. Not enough Canadians are covered by workplace-based savings programs.”—Tom Reid, senior vice-president, group retirement services, Sun Life Financial

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