Page 8 - May-June 2024 REPORTER - web optimized

INSURANCE UPDATE

4 WAYS TO KEEP UP WITH

THE TIMES FOR CANADIAN

EMPLOYEE RETIREMENT PLANS

HUB INTERNATIONAL LIMITED

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

8 LBMAO Reporter - May-June 2024 www.lbmao.on.ca