When was the last time you did a check-up on your group retirement program?
Group RRSP programs are a fantastic approach for enhancing the benefits that are provided to your employees. Group Retirement Benefits are a perfect way for Employers to reward loyalty for the employees who have worked for them for many years.
Just recently, I sat down with a company that not really reviewed its Group Retirement Plan for almost 10 years. The plan was set up long ago and has survived through numerous sets of CEOs and Human resource executives. This was a significant plan with 250 employees; over $5 million in assets and the company was matching contributions to the tune of $250,000 per year. This plan was in desperate need of a review.
Plan design and review
The first thing that needed review was the overall design of the plan. The plan was set up almost 10 years ago when they had less than 100 employees. The business back then was different than the business is today. One of the biggest changes to the plan was changed to their matching program. Originally matching was used to attract new employees during their growth phase. Now that the business has matured, they wanted to make sure their plan helped retain employees. Their human resource representative said, “After 5 years, our employees become very valuable to us and we don’t want to lose them.”
One of the things we changed was the implementation of a tiered matching program where longer-term employees enjoyed bigger matching benefits. An employee would get a 3% match for the first years. After three years they would get 4% matching and after five years they would get 5% matching with a lump sum bonus to their RRSPs. Based on these changes, the overall effect on the plan was actually neutral. It would not cost the company more money.
Shopping the market
The next thing we reviewed was the plan details. The first thing we did was tender the plan out to market. Shopping the market had two key outcomes. The first was an immediate fee-saving. It came out that the fees on their existing plan had not changed for years. The fees were based on their original set up and now that the plan had $5 million in assets, there was lots of room to negotiate fees. Every other plan that was tendered came in with considerably lower fees. The existing carrier sharpened up their pencils and offered to reduce fees by 20%.
The other change that was made to the plan was the investment line up. After a thorough review, it was decided that the choice of investments needed to be changed. We added some of the new Target Date funds which didn’t exist when the plan was first set up. There were also some long time employees that wanted to have some more choices with sector-based funds like gold and technology.
The next big area of the review was employee education. One of the concerns voiced by one employee was they wanted help choosing investments but when they contacted the broker he just tried to sell them more life insurance.
After much consultation it was determined that we needed to develop a structured educational plan that included:
- Two optional half-day educational workshops
- 30 minutes at their annual meeting would be devoted to their benefits
- We would put together 4 email newsletters a year for the employees which would contain information on the plan but also general financial education
- We would offer one on one individual consulting with employees on a fee-only basis where there would be no ‘selling or promotion’ of products.
Especially in these economically challenging times, it is critical your group RRSP program is monitored and reviewed from time to time. Good brokers will be proactive in review the design, service providers and services. Unfortunately, not all brokers are good so if your plan has not been reviewed in a while, now may be the time for a check-up.