4 signs your retirement plan needs a health check
Updated: Apr 9, 2020
How do you know when it’s time for a checkup? As humans, our bodies give us signs to warn us when something is off. And oftentimes ignoring the signs can worsen the condition. What does the human body have to do with group retirement plans, you ask? Well, we’re more than happy to tell you! Much like sniffles to the common cold or fever to the flu, your group retirement plan can show you signs that it’s in need of a health check.
If you are an employer providing a group retirement plan to your employees, it’s likely that you have accepted the responsibility of ensuring that the plan you offer is in good standing. Whether you’re sponsoring a Defined Contribution Pension Plan (DCPP), Group Retirement Savings Plan (GRSP), or Deferred Profit Sharing Plan (DPSP), a simple and complimentary health check will help ensure that your employees are on the right track for their retirement.
Keep a lookout for the following 4 indicators that can signal the need for a reassessment.
It’s been a year!
The most obvious sign that your plan needs a health check is the span of time since you last did an in-depth review. Reviewing your company’s plan on a yearly basis (at a minimum) follows industry best practices and is fast becoming an integral part of a company’s annual ‘housekeeping’. Some companies, conscious of the ever fluctuating financial markets, go further and review their plans every six months. If a biannual review is too great an administrative burden, aim for having a review at least once a year.
Employees approach you with investment questions
Most traditional group RRSPs and DC plans place the onus on employees to make investment decisions for their plans. Yet, the 2016 CAP Member Survey found that many members struggle with investment decisions. In fact, the survey found that 79% of plan members just want to make an investment choice for their workplace retirement plan and then put it out of mind (and hence not monitor the financial markets or their own portfolio performance), and 87% say that they find investing complicated.* If your employees struggle with making investment decisions perhaps it’s time to conduct a review of your plan.
In Canada, it is not uncommon for employees to pay fund management fees in excess of 2% of assets under management per year for a retail mutual fund. These high fees have attracted the attention of regulators who have introduced disclosure regulations known in the industry as Client Relationship Model Phase 2 (CRM2). These regulations are designed to promote greater transparency for such things as trailer fees, deferred sales charges and management expense ratios, yet there is still a great deal that isn’t reported and many loopholes. For instance, the rules only apply to mutual funds, not other similar products such as segregated funds offered by life insurance companies. According to Stan Buell of the Small Investor Protection Association “there's already been a transition from selling mutual funds to selling segregated funds as a way of escaping the new rules.” If you have your plan reviewed by a fiduciary they can uncover any embedded or hidden fees that you might not be aware of or even fees you could possibly eliminate.
Outdated Investment Options
Under the Capital Accumulation Plan (CAP) guidelines it is the plan sponsor’s responsibility to conduct a review of investment options offered to plan members to ensure that they are still appropriate. The plan sponsor is also responsible for educating plan members on how to select the funds that best meet the plan members’ individual risk tolerance and personal circumstances. For instance, if an employee is nearing retirement but has a heavy equity exposure the sponsor may have a fiduciary risk. However, having a fiduciary investment manager may help as it can mitigate the legal liability that the company bears as a fiduciary on behalf of their plan members.
As a fiduciary, Open Access is legally obligated to act only in the best interests of the plan members. If any of these indicators suggest a review might be appropriate for your plan we would be happy to provide you with a complimentary and unbiased assessment to ensure your plan is as healthy as it can be.
For more information about CAP guidelines, and how to follow standard CAP guideline practices, please visit: https://www.jointforum.ca/en/init/cap_accumulation/cap_accumulation.asp, or simply call Open Access at 1-866-625-4777 to speak to a qualified and knowledgeable representative.