Whose Responsibility Is It Anyway?
By: Karrina Dusablon
The time has nearly arrived and the bulk of Canadian Baby Boomers are looking forward to walking out the office door one last time and taking their first step into retirement to enjoy a relaxing life full of exotic dreams. But are they prepared? And, to what extent are companies responsible for helping employees prepare for retirement? Is the onus for retirement preparation shifting to the employer?
In the past, many employers took a more paternalistic approach to retirement planning, offering their employees a Defined Benefit pension plan. The employer guaranteed the employee a retirement income and assumed responsibility for investing sufficient assets to fund the targeted level of retirement income. As the cost and administrative complexity of these plans rose, employers began to shift toward Capital Accumulation Plans, thereby increasing the need for educating employees on their role in saving for a secure retirement.
Implementing these capital accumulation plans does help Canadians – with access to them – to save money on a regular basis. In 2005,1 nearly one-third of Canadian workers reported that they have access to, and take part in, a pension plan or a group savings plan offered through their employer to help save for their golden years.
But, do these workers understand this workplace benefit and, conversely, do employers understand the expectations their employees have about the benefit and the support they want from the company? The CAP Guidelines put the onus on plan sponsors to introduce the plan to members when they join and, thereafter, to ensure that they have the information and assistance they need to make informed decisions regarding their retirement planning, particularly when it comes to investments. No mention is made, however, of the plan sponsorʼs obligations towards the member when the time comes to decide how to make use of the sums that they have accumulated for retirement. Could the employer end up being responsible if the employee were to prematurely deplete his or her assets during retirement due to bad financial planning?
Perspective Will Change
Currently, according to the 2006 edition of the Desjardins Financial Security Retirement Survey, 53 per cent of polled workers over 40 years old said they were satisfied with how their employer, trade union, or professional association helped them to prepare for retirement. A key consideration to keep in mind, however, is that, on average, these workers say they are 12 years away from retirement and likely havenʼt delved too deeply into all the aspects of retirement planning and looked at the resources available to them. As this cohort approaches retirement, their perspectives will change. Right now, we know that slightly more than the majority of all working Canadians feel they are being well taken care of by their employer, union, or association. However, broken down by age, this point of view shifts and 58 per cent of workers in the key transition years of 65 and 69 years feel their employer could do more to help with retirement planning.
As the bulk of the Canadian population ages to the magical retirement age of 60 years, the reality might shift and workers will begin to look to their employer for assistance. One likely reason is that 60 per cent of Canadians do not currently use a financial advisor and the majority rely on family and friends and, in some cases, the Internet for retirement planning advice. So, they might look to their workplace as a credible source of information. These individuals are asking for support ranging from meeting with an advisor to retirement plans and social benefits. (See Chart 1).
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -