Special Promotional Feature

As aging boomers approach retirement on the heels of one of the worst financial crises since the Great Depression, some of the paradigms to which they have become accustomed are now becoming frayed at the edges.

Historically, employer-sponsored benefit plans were considered the corner-stone of a person’s financial security. Much like having a good satisfying job, we felt lucky to have a benefit plan, and luckier still if we had access to an employer-funded retirement savings plan.

What we’ve seen during the past four decades has been a series of adaptations to counter a number of pervasive forces: an aging workforce, increased longevity, uncertain financial markets, low interest rates, low economic growth, and high government deficits.

For benefit plans, the resulting cost-shift from government programs to the private sector has been steady but silent. The result is that employers and their employees are increasingly feeling the pinch. Employee health and pension plans have evolved from ‘fringe’ add-ons to key elements of an employee’s compensation and the company’s overall human resource strategy. The benefit plan is also taking a growing proportion of employees’ pay, as employees are asked to contribute more to retain existing benefit levels.

This evolution has fuelled product development and plan design options such as critical illness insurance, long-term care insurance, health care spending accounts, health and wellness accounts, employee and family assistance programs, pay-direct drug plans and customized drug formularies.

Many of the new product development and strategies are effective at filling the gaps left by retreating provincial health plans and the growing needs of aging boomers. But filling the gaps will be accompanied by increased cost. Prescription drugs were, for the most part, almost entirely covered by provincial programs 30 years ago. Now, employer-sponsored benefit plans probably cover up to 70 to 80 per cent of your personal medications each year.

The costs of ensuring benefit plans remain relevant while adequately covering most of an employee’s medical needs may be approaching unsustainable levels. Provincial and customized drug formularies, along with higher co-pay and coinsurance, are now considered mandatory plan design considerations in contemporary corporate benefit plans.

In the last twenty years, employee retirement planning in the private sector has seen a majority of defined benefits plans replaced by Group RRSP and defined contribution pension plans. Much of this change is an effort to keep benefit plans more relevant to a younger mobile workforce, but inevitably the investment risk and the responsibility of saving for retirement has shifted to a greater extent to plan members.

Pension reform, which is on the front lines of the federal and provincial government’s initiatives since the financial crisis of 2008, is also focused on the realities of today’s boomer experience. There is a perception that Canadians, especially those earning between $30,000 and $100,000, are not saving enough for retirement. This may be true for the most part, but cash-strapped Canadians are not in a position to save more. Servicing rising personal debt is taking a larger piece of a shrinking pie so it is going to take some serious intervention to prepare people for a life without work.

A number of proposals designed to fix the Canadian pension system were discussed and reviewed during the public consultation process in 2010. These proposals included increasing CPP benefits and contributions, and the creation of a super fund much like the current CPP/QPP program. For a number of reasons, especially the risk of recession, CPP reform was taken off the table – for now.

As a result of this consultation process, the Pooled Registered Pension Plan (PRPP) was created and the program is expected to launch in participating provinces in 2013 or 2014. What we hoped for was legislative reform which would permit new types of pension plans and a simplified regulatory environment for registered pension plans. What we’ve been given is another voluntary plan much like the under-utilized RRSP.

Without mandatory enrolment, employer participation and automatic escalation of contributions, we just don’t believe this will help the target population. And without a harmonized approach across the country, which is very possible, there will be administrative challenges for national and trans-provincial employers.

At the end of the day, maximizing retirement savings will ultimately come down to each of us using the current system more effectively than we have in the past.  Individuals will have to take a greater interest and role in their own planning and employers will have to be more creative in helping employees prepare for a life without work with an integrated strategic solution for the benefits program.