Page 8 - Jun 2022 - web optimized

Insurance UPDATE

4 ways to keep up with the times for

canadian employee retirement plans

mployees may have a “set it and forget it” mentality
HUB INTERNATIONAL Etowards their retirement plan. But that’s not really • Tax savings for the employer, as contributions are paid
pre-tax and are tax deductible
LIMITED an option for employers: Group retirement plans • Employees who leave the company after the vesting
need to be monitored, audited and updated, lest they period can convert their plan into a RRSP, tax free, or
fail compliance and regulatory guidelines, and see another investment vehicle
employee participation decline.
The need for change doesn’t happen in a vacuum. Make target-date funds a mainstay of the investment
As employees head towards retirement, they may need line-up:
direction on how to spend their retirement savings. Target-date funds simplify choice and make it more
Younger employees may need incentives to stay likely for employees to participate in the retirement
invested with the plan. plan. Usage of target-date funds in Canada has grown
And sponsors may need to look at alternate ways from 7% of workplace retirement plans in 2010 to
of funding their retirement plans in order to improve 30% in 2020, and its popularity continues to grow.
retention and cut costs. Target-date funds are easy to use and understand,
Here are four ways to help optimize Canadian while appealing to employees who don’t want to over
group retirement plan participation and engagement think asset allocation, as the portfolio mix changes to
while making sure the plan remains reduce risk over time. To simplify things even further,
"Forward looking affordable: target date funds make for a popular default investment
option that correlates with their target retirement date.
Canadian employers Improve retention with a tiered
contribution design: Help employees chart a roadmap for retirement:
can harness Traditionally, employers will offer As Canadian Baby Boomers enter retirement, the shift
several investing 50% to 100% matching of employee continues from asset accumulation to decumulation, or
contributions up to a certain amount, spending savings in retirement. Even for investment-
trends to improve such as 5% of salary. However, a tiered savvy employees who have saved well for retirement, it
contribution plan makes it more likely can be unclear what they should do once they leave the
participation and that employees will stick around to get workforce. Common questions include:
engagement with a higher match. For instance, in years • What happens to retirement accounts in retirement?
one to five, an employer will match an • How do retirement accounts translate into income
their retirement employee’s contributions at 100% that lasts?
plans." but only up to 3% of salary, while that • What is most tax efficient?
• How do workplace retirement savings mesh with
maximum goes up to 4% in years six
through 10 and 5% after 10 years. This Canadian Pension Plan and Old Age Security benefits?
matching upgrade at five and then 10 years rewards
employees for their loyalty, while encouraging them to In this vein, organizations can provide employees with
increase contributions over time. educational resources to guide them through their post-
working years.
Implement a deferred profit sharing plan:
A deferred profit sharing plan (DPSP) gives employees Workshops, webinars and printed materials can help
the opportunity to share company profits. There employees learn how to manage their income once they
are several advantages to a DPSP for employee and leave the workforce — and keep them engaged while
employer alike: they’re doing their jobs.
• A vesting period of up to two years, encouraging To learn more about improving your retirement
employees to stick with the organization plans, contact your HUB broker.
• The company recovers 100% of its contribution if
the employee leaves before the vesting period is
complete
8 LBMAO Reporter - May-June 2022 www.lbmao.on.ca