Canadian Sponsors Fret Over Fund Related Litigation

January 20, 2004 ( - Canadian plan sponsors are worried that their efforts to educate their defined contribution (DC) plan participants are not going far enough, and that they may be opening themselves up to possible litigation.

In fact, more than half (53%) of Canadian plan sponsors rate educating plan participants as extremely important in protecting their organizations from potential litigation. However, only 11% of sponsors rated their own performance extremely well in this area, according to a joint study commissioned by SEI Investments Canada and Financial Executives International Canada canvassing 120 DC plan sponsors in Canada.

Others feel as though participants may be looking elsewhere for advice on their retirement funds. Thirty-two percent of Canadian plan sponsors suspect participants are already seeking outside investment advice as a means to augment educational efforts provided by their employer.

“Existing educational efforts have fallen short of improving the capability and confidence of pension plan members to make the right investment decisions,” said Patrick Walsh, President and Chief Executive Officer of SEI Investments Canada. “Sponsors are only beginning to realize the importance of tying their existing, in-house educational efforts with credible, third-party investment advice.”

With few plan sponsors feeling as though participants have been properly educated and the current market-timing and late-trading scandal sweeping through the mutual fund industry, litigation concerns were highest among DC plan sponsors with over $50 million in assets under management. Roughly one-quarter (24%) of total respondents felt that their organization would face litigation within the next two years.

Further, plan sponsors apparently have low expectations on participants’ ability to time their retirement, and of participants’ knowledge and involvement in their retirement planning. Plan sponsors believe that less than half (43%) of Canadian DC plan participants will be able to retire when they wish and only 38% of the survey sample think participants will have enough money to retire.

Some of this apparent lack of preparedness may be traced back to participant knowledge. Canadian sponsors believe that only 26% of DC participants are actively involved in decisionmaking for their retirement planning and that 23% of participants are very knowledgeable about their retirement planning.