Pension plan sponsors facing advice conundrum

By Doug Watt | November 10, 2004 | Last updated on November 10, 2004
3 min read

(November 10, 2004) Canadian companies offering defined contribution (DC) pension plans agree that offering financial advice to employees is important, but are unsure how to proceed, a new survey suggests. Simply communicating the need for advice and encouraging employees to seek out that advice independently could be the answer.

The survey was conducted for Sun Life Financial by researchers at Benefits Canada magazine (the same research team responsible for the Advisor Group’s Annual Dollars & Sense Survey).

When asked to characterize the communication they provide to employees with respect to DC plans, 54% of employers said they provide information, 40% said they provide education, but only 6% said they offer financial advice. However, 25% said they would like to categorize themselves at the advice end of the spectrum two years from now.

In addition, 80% agreed with the statement that education will only benefit some DC plan members — others will need advice. And six in 10 of those surveyed said providing access to financial advice would be a necessity in the future to avoid financial liability.

But despite the apparent increased interest in offering advice, many employers are reluctant to take that step.

“The risk of litigation is the biggest barrier to offering DC plan members access to financial advice, according to the survey,” says Sun Life vice-president Lori Bak. “But a real conundrum exists for employers — fully half of plan sponsors surveyed said that providing members with access to good solid financial advice will actually reduce their financial liability.”

However, 46% of those surveyed said plan sponsors need to “err on the side of caution” by providing limited information to plan members, thereby reducing financial liability.

Even outsourcing financial advice to a third party provider, a recent trend in the industry, is risky, notes Colin Ripsman of Mercer Human Resources Consulting in Toronto. So-called “safe harbour” protection covering properly selected investment advice exists for employers in the U.S. But in Canada, the Joint Forum of Financial Market Regulators’ recently-released Capital Accumulation Guidelines doesn’t cover that issue, he points out. “The guidelines say that if you provide advice through third-party providers, you have an obligation to monitor its effectiveness over time.”

“Right now, it’s too easy for an employee in the future to challenge the advice they are given with the benefit of hindsight,” he suggests.

At least one plan sponsor thinks pension plan members should be encouraged to seek independent financial advice outside of the employer. “A plan sponsor doesn’t have the whole picture of the members’ assets,” says Jean-Gregoire Morand of Normandin Beaudry. “An independent advisor chosen by the plan member would have this.”

Ripsman agrees, stating that the need for advice can be communicated to employees, rather than having the plan sponsor offer the advice themselves. “One of the primary factors to communicate to plan members is the potential need for them to go out and get their own independent financial advice.”

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  • The report concludes that since offering direct advice to plan members represents an almost insurmountable challenge, “perhaps communicating the importance of advice over time will help plan members seek out independent advice to help them take control of their financial future. Whatever the case, advice will be top of mind for plan sponsors in the years ahead.”

    The study is based on 157 online surveys completed by Canadian employers who offer DC pension plans, hybrid pension plans (with DC and defined benefit components), or group registered retirement savings plans. The survey was conducted between August 31 and September 14, 2004. The margin of error for a sample this size is plus or minus 6.4%, 18 times out of 20.

    Filed by Doug Watt,,


    Doug Watt