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Keep it simple: company plans
Financial Post, Saturday February 16, 2008
Daryl-Lynn Carlson

There are three components to a good company RRSP: It should include fund options for employees to choose from, have low fees’ and most importantly, be simple to understand.

“There are many employees who aren’t very engaged or don’t even participate” in their employer group RRSP, says Kyle Dunn, an employee benefits consultant who runs Horizon Financial Planning Group in Vancouver.

“Or, they may be making’ contributions, but they’re working 40 to 60 hours a week and they may not take the time necessary, even if it’s an hour a year, to look at their fund’s performance”

That’s a travesty, he says, since a group plan in which the employer tops up or matches the contributions can produce healthy returns and is inexpensive to administer.

A year ago, Sun Life Financial found that out of nearly 500,000 of its members eligible for employer-sponsored RRSP programs, less than half - 230,000 - were participating.

Mr. Dunn says companies should make an effort to get employees engaged and excited about their employer-sponsored retirement programs, so they can recognize and take advantage of its value. An easy-to-use plan that gives an idea of what employees can expect at retirement, can also serve to foster loyalty in the workplace.

Tina Tehrachian, a certified financial planner With Assante Capital Management Ltd. in Toronto, says many employees aren’t participating in their group plans because they’re not well informed. “Part of the problem is employees are not educated enough about the options they have and all the bells and whistles that comes with a plan,” says Ms. Tehrachian.

Besides providing regular updates in a language that is clear and simple, a good plan will also include transfer options so employees can move funds into their own individual RRSP without penalties.

“That way, they can do periodic transfers to their own personal plan and take advantage of the pre-tax contributions and the matching employer contributions without getting locked in to only those options,” she says.

Some workplaces enlist in self-directed RRSPs that enable employees to select funds based on their individual risk tolerance. However, most self- directed RRSPs command a trustee fee of $50 to $100 and are best suited for more astute investors.

Another option that workplaces can use to augment their group RRSPs is a Deferred Profit Sharing Plan (DPSP). Under a DPSP, however, employees aren’t allowed to contribute and there are often non-profitable years during which no contributions are made.

Which plan is best for the workplace “really depends on the workplace,” says Ms. Tehrachian. “Some companies don’t like paying a trustee fee whereas others would decide to go with a mutual fund or life insurance company fund.”

Speaking at a recent conference for human resource professionals, Warren MacKenzie, president of Second Opinion Investor Services inc., urged all workplaces to not only get a plan, but to get all their employees signed up. Employees should be able to opt out of a group RRSP only by signing a form, not the other way around, he says. “The default should be that you contribute.”

Moreover, he adds, “The choices should be simple. Instead of 50 different funds where the employee is required to put them together, there should be choices like income portfolios, balanced portfolios, growth portfolios, presented as simple choices to get diversification.”

And it’s not enough to just hand out brochures. “Companies often equate giving out information with education and that’s not the case,” he says. “Across the board we know people are not saving enough. Employees have to be educated.”

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