HOOPP/ Common Wealth on Why Retirement Plans Are Good For Business
Retirement benefits are often looked at through the lens of the individual. But what happens when you turn it around and look at the value of retirement benefits to employers?
We explore this, and more, in the new HOOPP commissioned report by Common Wealth, The Value of a Good Pension: The business case for good workplace retirement plans.
The research shows that good workplace retirement plans create value for employers, including offering a range of benefits that strengthen an employer's bottom line.
Let's take a closer look at what these benefits are:
- Enhanced talent attraction and retention: Good workplace retirement plans give employers a competitive advantage, differentiating them as an employer of choice and positively impacting talent attraction and retention. Studies have found an association between improved talent attraction and retention rates when workplace retirement plans are offered. For example, as noted in the 2021 Canadian Employer Pension Survey, and varying according to the type of retirement plan, between 77% and 87% of employers who currently offer the benefit said a workplace retirement plan was extremely important or very important for recruitment. Furthermore, a study from Manulife found that 86% of employees who belong to a workplace group retirement plan agreed these benefits increase retention, with 82% of the same employees agreeing they increased their loyalty to their respective employers.
- Greater employee productivity through reduced financial stress: Offering workplace retirement savings can help employees feel more secure monetarily, reducing financial stress. This further reduces rates of absenteeism and presenteeism (physically present at work but not fully functioning), improves productivity and strengthens company performance. A 2017 Pricewaterhouse Coopers report revealed that some financially-stressed employees can hurt company performance; almost half of distracted employees reported spending three work hours or more per week on financial issues. Additionally, according to the Canadian Payroll Association, financial stress is costing Canadian employers approximately $16 billion annually due to lost productivity. Some behavioural scientists have also shown a causal relationship between financial scarcity and mental function. They have demonstrated that preoccupation with financial concerns leaves fewer cognitive resources available to guide choice and action.
- Improved compensation efficiency: The amount of financial value a certain compensation package produces for an employee under various retirement benefits scenarios differs. Known as compensation efficiency, this improves when employers offer retirement benefits. While compensation efficiency directly benefits the employee, it also boosts employers’ recruitment, retention and productivity in a competitive job market. Improved compensation efficiency consequently makes the most financial sense for everyone. In our earlier research; The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada, we identified five value drivers that determine the value for money in a retirement arrangement: saving, fees and costs, investment discipline, fiduciary governance and risk pooling. For employers seeking to maximize lifetime financial value for its employees, the more of these value drivers are included in their retirement plan, the more compensation efficiency they will offer.
So what can employers do?
To support their employees’ retirement security while reinforcing their bottom line, here are some considerations for employers:
This research can spark a conversation among employers and other stakeholders about how Canadian businesses can offer and enhance workplace retirement plans to create business value, while strengthening retirement security for workers.
For more information on the value of employers offering workplace retirement benefits and considerations to go about offering them, please read The Value of a Good Pension: The business case for good workplace retirement plans.
Take the time to download the full HOOPP/ Common Wealth report here.
Below, I embedded the Executive Summary which explains the report from a high level:
I want you to all take a look at the chart below:
It shows you clearly how defined benefit plans went from covering 35% of the private sector working population back in 1971 to 10% today.
Defined contribution plans cover 8.4% of the private sector working population and the rest is other RPPs and group RRSPs.
My point is simply this, the 1970s were great years in terms of pension coverage with a larger percentage of the population covered under a defined benefit plan, the gold standard of pensions.
Yes, demographics were better back then but if you ask me the biggest single culprit behind the looming retirement crisis, its the decline in private sector DB pensions.
I have laid down my "radical proposal" to rectify this in a comment I wrote back in September. You can read it here.
Of course, my proposal isn't radical, it's just that there's no political will to create another large, well governed Canadian public pension plan that amalgamates all the private defined benefit plans.
Too bad because large Canadian pensions are good for the economy over the long run.
Given these constraints, the folks at HOOPP are doing their part to move the policy discussion forward.
In October, I covered HOOPP's 2021 Canadian Employer Pension Survey.
That survey found employers that offer retirement savings benefits report higher levels of employee productivity over the past year and have greater optimism for the future.
The HOOPP/ Common Wealth report goes even further, finding that workplace retirement plans should not be solely viewed as a cost, but as an investment as well:
I couldn't agree more, the world is changing fast, the focus is shifting on talent attraction and retention, especially in a post-pandemic world.
In my opinion, businesses that take their workplace retirement plans seriously, offering their employees solid retirement plans, will have a competitive advantage over those that don't.
Let me even take it a step further.
"ESG" is the catch phrase nowadays but what does that mean? Fluff or substance?
So far, I see lots of fluff, not much substance.
The "S" in ESG is just as important as the "E" and we better start viewing more things through the social lens.
And retirement security factors into that social lens.
Employees are getting smarter, they know the difference between a shoddy retirement plan and a great one.
Employers also see the value of a good pension and smart employers will find ways to find cost effective, secure retirement plans, like CAAT's DBplus or OPTrust Select.
In fact, if your HR team isn't up-to-date with the latest on retirement plans, your business will suffer the consequences.
Alright, let me wrap it up there. Please take the time to please read The Value of a Good Pension: The business case for good workplace retirement plans.
Below, workplace retirement plans are about more than providing improved financial security to Canadian workers in retirement. In fact, there is strong evidence to suggest that workplace retirement plans also offer a business advantage to employers as well as value to the overall economy.
There is no doubt that Canadian employers will continue to face challenges as our country, and the rest of the world, recovers from COVID-19. But as Einstein famously said, “In the middle of difficulty lies opportunity.” Employers have the opportunity to realize a competitive advantage by rethinking workforce compensation strategies, offering or enhancing workplace retirement benefits, and reducing employees’ financial stress.
Earlier today, the Empire Club of Canada had a virtual event that launched the new research paper by HOOPP and Common Wealth, The Value of a Good Pension: The business case for good workplace retirement plans.
The event featured a panel discussion on the key findings of the
research including how workplace retirement plans offer value to an
employer’s bottom line, security to employees and improved economic
stability for all. Watch it below.