Investment fees: Do employees know enough?
In this issue:
Investments
Research & Compliance
Investments and CAPs
DC investment fees: Do employees know enough?
By Kevin Sorhaitz
Based on a new study, probably not. And yet, plan sponsors seem to think their employees have all the information they need!
The Transamerica Center for Retirement Studies (California) has revealed a gap between employers and employees in understanding the fees involved in their defined contribution pension plans. While the survey was based in the U.S., and was focused on employee awareness of 401(k) fees, there might be some surprises in store for Canadian plan sponsors.
Despite extensive educational efforts by plan providers, most workers (68%) agree that they do not know as much as they should about retirement investing. Only 6% considered they knew enough about asset allocation, and many only guessed at their retirement savings needs.
Surprisingly, employers have a much different perspective. The survey found that most plan sponsors are not interested in receiving more information or disclosure about plan costs. They believe that their employees are receiving the right information to make decisions about the plan.
“However,” the report concludes, “it is paramount that employers recognize the importance of communicating fees and that workers take responsibility in educating themselves regarding fees and planning for retirement.”
From a Canadian capital accumulation plan perspective, there is a very good chance that your plan members don’t understand what they’re paying for, or why. Employers face a dilemma: whose responsibility is it to educate members – the service provider, the plan sponsor, or the plan member?
It’s clear that if this lack of understanding is ignored, then your governance program has a big hole in it and your company is taking a risk. Given increasing litigation over adequate retirement planning, that risk could come back to haunt you.
Research & Compliance
The changing landscape of Federal pension legislation
By David Blundell
Proposed changes to the Federal Pension Benefits Standards Act have finally been passed. A limited number of new provisions came into force for federally regulated pension plans on July 12, 2010. Other provisions with more impact on plans, such as immediate vesting, will be in place once regulations are passed, hopefully later this year.
Provisions in force, at a glance:
- Pension division on marriage breakdown
- Phased retirement
- Solvency impairment
- Powers of Superintendent
- The Superintendent can replace an actuary if the Superintendent considers it in the best interests of plan beneficiaries.
- The Superintendent can declare a full wind-up if benefits cease to accrue under the plan.
- Only the Superintendent can declare a pension plan to be partially terminated (employers can no longer do so).
- Multi-employer pension plans
- Defined contribution (DC) plans
- Surplus conditions
If there is no court order or agreement to divide a pension on marriage breakdown, then the plan may permit the pension to be paid in the plan’s normal form (say a Life 60) instead of the required statutory joint and survivor pension form.
Where a court order or agreement divides the pension, and the former spouse elects to keep the divided pension in the plan, the administrator is obligated to administer pension benefits to comply with the order/agreement.
If a member is receiving a joint and survivor pension, and elects phased retirement under the plan, he or she will need spousal consent.
The Superintendent’s approval will be needed for any transfer payment or annuity purchase which could impair the solvency of the Plan.
Two significant and welcome changes to multi-employer pension plans have been made.
First, a MEPP administrator will be permitted to amend the plan to reduce accrued benefits, even if the plan text says otherwise. (The amendment to reduce benefits will still need the Superintendent’s approval.)
Second, the contributions of participating employers will be limited to only those contributions required under the terms of the collective agreement.
The transfer of DC assets to another pension plan no longer needs the prior approval of the Superintendent.
Arbitration conditions have been added to the Act where a plan is being terminated in whole and the employer has not established a claim to surplus or the employer is in the process of being liquidated.
If you have any questions or require assistance with these changes, please contact your Buck Consultant.
