Employers should offer employees workshops on ethical investing for their RRSPs.
Dateline: Monday, June 13, 2005
by Ron Robins
The Canadian Labour Congress
released a poll in August 2004 showing that the percentage of those
"worried about not having enough money to live after retirement" rose
in two years to 73 percent from 54 percent. Yet many employees fail to
put much thought into planning their pensions. This is where companies
have the opportunity to step in: why not offer pension education as an
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The number of defined-benefit plans offered by surveyed companies will drop to 39 percent from 49 percent between 2000 and 2006.
One possibility in this area,
and a unique way to motivate employees, is to apply personal values
(social, environmental, etc.) to investments. Since I'm involved in the
business, my opinion is obviously biased, but there is plenty of
research that shows this is an area of growing interest and importance.
For example, a survey released in February 2004 by GlobeScan found that
84 percent of Canadian shareholders believe that the "financial
community should pay more attention to social and environmental
performance when valuing companies." In addition, 80 percent of
shareholders are interested (23 percent very interested and 57 percent
somewhat interested) in learning more about the corporate social
responsibility (CSR) performance of companies in their investment
Even major business publications are lending support to this idea. Report on Business
magazine ran a feature story in its March 2004 issue on "socially
responsible investing." It introduced the story on a blank, white,
front cover with a line that read, "the most important issue of the
century... so far."
Adding to the importance of
getting employees engaged in their pension planning is the shift from
defined-benefit to capital-accumulation plans (CAPS — which include
defined contribution plans, group RRSPs, RESPs and deferred
profit-sharing plans). According to an April 2004 Hewitt Associates
survey, the number of defined-benefit plans offered by surveyed
companies will drop to 39 percent from 49 percent between 2000 and
2006, while defined-contribution plans will increase to 53 percent from
43 percent in the same period. Capital Accumulation Plans also
necessitate greater employee engagement due to their often varied
options that employees must choose from.
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half of employees thought their pension would provide them with
retirement security, compared to more than 80 percent of employers.
Hewitt also found wide
disagreement between employees' and management's perceived benefits of
their company pension. Barely half of employees thought their pension
would provide them with retirement security. In contrast, over 80
percent of employers thought their pension plans provided retirement
security to their employees. When the study asked retirees what they
would have done differently given the opportunity, the number one
answer was "to have started contributing to an RRSP sooner." The Hewitt
survey also noted: "One of the most frequent anecdotal comments
provided by those [retirees] who completed the survey was the need for
more information, guidance and advice about starting early to save for
Evidence from two other
significant studies in 2004 also support the view that employees should
have RRSPs, etc., in addition to their employer or union-sponsored
plans, as some of these may not be available for them upon their
retirement. In February, the CD Howe Institute stated that Canadian
workplace pension plans were underfunded by $180 billion. Then, in
June, the Certified General Accountants Association of Canada said that
"59 percent of all defined-benefit pension plans in Canada are now
running deficits that will require $160 billion to cover the total
The result of defined-pension
plan failures could be ugly. Even with Capital Accumulation Plans,
there is still the potential for significant problems, legal and
otherwise. One way to reduce these potential problems — and employee
dissatisfaction — is to actively promote and offer pension investor
Deborah Lomow, senior
vice-president, corporate pensions, Scotiabank, says, "I think that,
generally, there is room for employees and employers to get more
engaged in pensions and retirement planning. I believe that this has
started, and that the momentum will only build."
But more comprehensive
employer-sponsored, employee pension-plan education is needed.
Incorporating an educational component that shows employees how to
include their personal values — not just material ones — in their
investment choices, could be used as a way to engage them in their
pension planning. Further, companies offering such educational programs
make an important positive statement about their values to their
employees and stakeholders.
Ron Robins, MBA, is founder
of Investing for the Soul, based in Toronto. This article appeared in
the April/May 2005 edition of HR Professional, Canada's magazine for
human resources professionals.
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