Canadian Employers Are Changing Retirement Programs

April 21, 2004 ( - Canadian plan sponsors and participants may not be on the same page when it comes to desired results of company-sponsored retirement plans.

The majority of the 174 Canadian employers surveyed believe their retirement programs are successful in meeting stated objectives. Yet many organizations are modifying their plans in response to lower stock market returns, double-digit inflation in health-care costs, and initiatives to reduce overall corporate spending not necessarily to improve the plan’s objectives, according to Hewitt Associates’ Trends in Canadian Retirement Programs study.

Among the modifications being made to company retirement programs in Canada is a shift away from defined benefit plans and into defined contribution plans. In 2000, 49% of employer respondents provided a defined benefit plan, which Hewitt forecasts will drop to 39% by 2006. At the same time, the prevalence of defined contribution plans is expected to increase by 10% over the same time span, from 43% in 2000 to 53% by 2006.

Additionally, 54% of respondent employers provide postretirement benefits (medical, dental and/or life insurance benefits) to their retirees. Not surprisingly, the top reason given for not providing postretirement benefits is the rapidly rising cost of health care, offered by 75% of those companies without this benefit.

At the same time, employers are not necessarily modifying their retirement plans to meet the needs of retirees. While employers indicated that their top three reasons for providing retirement programs were to offer a competitive total compensation package, retain employees, and enable them to achieve adequate retirement income, feedback from the 550 retirees polled suggests that some employers may have difficulty meeting these objectives unless they take future conditions into consideration.

Seventy-one percent of retirees indicated that one of their key sources of retirement income is their company pension, yet only 51% think their pension adequately provides them with retirement security. In contrast, over 80% of employers believe their pension plans provide retirement security to their employees and retirees.

That is not to say retirees place the full weight on their former employers shoulders. When asked what they would have done differently if given the opportunity to go back in time and change their savings habits, retirees’ most frequent responses had nothing to do with wishing they had worked for an employer with a better pension plan or had joined the company pension plan earlier. The number one answer as to have started contributing to a registered retirement savings plan (RRSP) sooner (41%), followed by contributing more to an RRSP (29%).

Hewitt’s “Trends in Canadian Retirement Programs” survey was completed by 174 organizations ranging in size from one hundred to 10,000 employees, representing a wide range of industries from across the country. In addition, 567 retirees provided input in a separate survey containing several of the same questions so that answers could be compared. Copies of the study are available by calling (416) 225-5001.