A recent report shows participation rates for eligible employees in voluntary defined contribution plans to be 81 per cent, but only 61 per cent for voluntary group registered retirement savings plans, a sign companies should take to heart when considering mandatory enrolment, says one senior insurance executive.
A recent report shows participation rates for eligible employees in voluntary defined contribution plans to be 81 per cent, but only 61 per cent for voluntary group registered retirement savings plans, a sign companies should take to heart when considering mandatory enrolment, says one senior insurance executive.
“While these figures are healthy, when 20 to 40 per cent of eligible employees are not participating in their voluntary workplace pension plans, we can see there is room for improvement,” says Jeff Aarssen, senior vice-president of group retirement services for Great-West Life, suggesting employers consider implementing mandatory enrolment as one strategy to increase employee participation.
The Capital Accumulation Plan (CAP) Benchmark Report surveyed nearly 400 organizations offering a defined contribution (DC) or group registered savings plan (group RRSP).
From the employers’ perspective, mandatory enrolment means higher employer contributions – something that insurers should better explain to their business clients.
“We know some sponsors shy away from mandatory enrolment because of the perceived increase in employer contributions associated with greater enrolment numbers,” says Aarssen. “Where cost is a concern, sponsors can adjust the matching formula to a lower amount, to offset higher participation rates.”
That formula can be readjusted upward as resources allow, added Aarssen. (continued.)
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Mandatory enrolment can be achieved through a reframing of the matching contributions from the company, suggests Ken Millard, vice-president of national accounts for Great-West Life.
“If a sponsor matches 25 cents for every dollar a member contributes, that could be seen as an automatic 25 per cent rate of return,” says Millard. “That’s a strong message to share with members who are loss-averse.”
The reluctance could be related to loss aversion, adds Millard, referring to peoples’ tendency to place greaer value on avoiding losses than on making gains.
“While these figures are healthy, when 20 to 40 per cent of eligible employees are not participating in their voluntary workplace pension plans, we can see there is room for improvement,” says Jeff Aarssen, senior vice-president of group retirement services for Great-West Life, suggesting employers consider implementing mandatory enrolment as one strategy to increase employee participation.
The Capital Accumulation Plan (CAP) Benchmark Report surveyed nearly 400 organizations offering a defined contribution (DC) or group registered savings plan (group RRSP).
From the employers’ perspective, mandatory enrolment means higher employer contributions – something that insurers should better explain to their business clients.
“We know some sponsors shy away from mandatory enrolment because of the perceived increase in employer contributions associated with greater enrolment numbers,” says Aarssen. “Where cost is a concern, sponsors can adjust the matching formula to a lower amount, to offset higher participation rates.”
That formula can be readjusted upward as resources allow, added Aarssen. (continued.)
#pb#
Mandatory enrolment can be achieved through a reframing of the matching contributions from the company, suggests Ken Millard, vice-president of national accounts for Great-West Life.
“If a sponsor matches 25 cents for every dollar a member contributes, that could be seen as an automatic 25 per cent rate of return,” says Millard. “That’s a strong message to share with members who are loss-averse.”
The reluctance could be related to loss aversion, adds Millard, referring to peoples’ tendency to place greaer value on avoiding losses than on making gains.
