Each year Benefits Canada surveys members of Capital Accumulation Plans to monitor trends and the overall success of these programs. As we migrate to a world where DC and Group RRSP plans are one of the most costly and important employee benefits, there has never been a time where this survey is more important.
In speaking to my friends at Benefits Canada at the end of 2018, they lamented that the CAP industry no longer saw value in the survey and many large recordkeepers were doing some research on their own rather than supporting the industry-wide survey. I was shocked and sad all at once and through my charm and a few dollars I was able to persuade Benefits Canada to take one more run at the survey.
The results of the survey were discussed at the Benefits and Pension Summit in Toronto in April which featured the survey’s mastermind Justin Graham and a panel of industry experts as well as yours truly as moderator. A short article appeared online and tomorrow Benefits Canada is holding a free webinar to discuss the results in a little more detail. While Justin is still the mastermind, I was able to work my way in as the ‘industry expert’.
I don’t want to spoil the discussion for those of you already signed up for tomorrow or for those that still plan to sign up. With that said, I want to share some key insights for readers to think about if they are not going to have the time.
First, in my mind the CAP industry is mature now. We have had 30 years of evolution, resulting in an industry that has state-of-the-art recordkeeping, investment managers of all stripes, lifecycle and target date funds for the less savvy investor, and a financial advisor/broker network invested in helping plan members better plan for retirement.
Second, while there is still work to be done improving the system, building better decumulation products for example, there is not much more the industry has on its horizon to make CAP plans any more effective at helping workers afford retirement at a reasonable age.
Third, the industry still largely suffers from a disconnect between employer representatives knowledgeable enough to make good choices for themselves and the average plan member that doesn’t really have a clue what they are doing. The evidence? Only 55% of plan members feel financially prepared for retirement.
So where does that leave us? DB plans provided a high level of predictability on retirement benefits but low predictability on cost. Employers didn’t like that arrangement. CAP plans offer high predictability on the cost and low predictability on the retirement benefit – so you would think members wouldn’t like that approach but surprisingly to me anyway, they barely pay attention. And you would think employers would like CAP plans, but they only do because of their reliance on the ignorance of plan members. When plan members want to continue working into their 60s and 70s because they cannot afford to retire, employers may not be too happy either.
To get the CAP industry to the next level it isn’t the plans that need to change, it is the dialogue between employers and plan members that needs to be stepped up so that we can generate better outcomes for a greater number of plan members.