Offering a good quality pension plan can be a winning approach for employers trying to attract and retain top talent. In fact, a majority of Canadian workers would be willing to take less pay in exchange for a workplace pension plan. Even so, devising a total compensation strategy that successfully integrates an employee retirement solution can often be a challenge for company leaders. It’s important that an organization finds a plan that will be a win for both the business and its workforce. As such, employers should start by carefully considering some key questions when it comes to selecting a retirement plan.
What will we contribute?
How much is our company willing and able to put toward a retirement benefit? Additionally, how much cost uncertainty are we willing to bear? At one end of the plan design spectrum, Defined Benefit (DB) plans can provide excellent retirement benefits, but pinpointing future costs can be difficult. At the other, Defined Contribution (DC) plans offer a much clearer bottom line but the quality of benefits may suffer. Newer plan designs that offer a middle ground between these traditional solutions may be best suited to address a company’s needs.
How will we handle plan administration and oversight?
What is our desired level of involvement? Do we have a large Human Resources department with the necessary expertise to run a pension plan in house? Most companies, especially small and mid-sized ones, simply do not have the capacity to administer their own pension plan. Also, third party service providers and outside consultants will still be necessary in order to meet regulatory requirements and legal standards. In many cases, it will be prudent for an employer to choose an outsourced retirement solution run in a similar fashion to other employee benefits programs, such as insured health and dental benefits.
Who are our employees and what do they want?
What are our employee demographics? How old are they? How long have they worked at our company? What are their current and projected salaries? What about their expected retirement date? How much of their earnings will they be happy to contribute to their retirement savings, if any? How involved will they want to be in their retirement savings? What is their financial acumen? Answering these kinds of questions will help an employer decide on plan specifics that will best serve its workforce.
What type and quality of pension plan do our competitors provide?
If a company is implementing a retirement plan as an attraction and retention tool, then knowing what close competitors are offering can be helpful. Certain industries have traditionally gravitated to DB plans, for example. Most private sector companies now use DC plans or Group RRSPs. Still, within these arrangements there can be great variety. Contribution levels, investment and benefit options, support in retirement, and lifetime payments are all examples of how plans might diverge.
Will the plan ultimately deliver adequate benefits?
Unfortunately, simply offering a retirement plan doesn’t mean you’re actually providing retirement security to your valued employees. Typical DC arrangements and Group RRSPs often fall woefully short when it comes to ensuring lifetime retirement income. This can be problematic for workforce management and retiring employees on schedule. Choosing a pension plan that helps employees retire with confidence is essential.