New research indicates a good workplace retirement plan can provide benefits for employers
For small businesses across Canada smothered by the seemingly endless cycle of closures and missed opportunities to serve customers, the cost of maintaining a workplace retirement plan might not top the list of things they want to think about. But new research suggests that done right, it could turn out to be a very worthy investment.
The study, titled The Business Case for Good Workplace Retirement Plans, was produced through a partnership between the Healthcare of Ontario Pension Plan (HOOPP) and Common Wealth, a financial technology company that provides portable group retirement plans to various organizations including small and mid-sized businesses, not-for-profits, and professional associations.
“In previous research, we identified five value drivers for a good workplace retirement plan,” Alex Mazer, co-founder and co-CEO of Common Wealth, told Wealth Professional. “Those include regular automatic savings, lower fees and costs, investment discipline, fiduciary governance, and risk pooling. In this latest report, we also highlighted portability.”
Based on the modelling in the report, Mazer said having a plan that lets workers keep benefitting from the first five value drivers over the course of their career, even as they go from job to job and into retirement, can translate into hundreds of thousands of dollars in additional wealth accumulated over their lifetime, compared with saving for retirement on one’s own.
From an employer’s perspective, being able to offer a good workplace retirement plan is also a powerful tool. According to the research, having a vehicle to help them progress toward retirement is highly prized by employees, as it consistently emerged among the top benefits for recruitment or retention. Beyond that, it can also contribute greatly to improving productivity on the job.
“There’s a real linkage between people’s financial stress and their productivity,” said Steven McCormick, senior vice president for Plan Operations at HOOPP. “In the research we’ve done, three quarters of employers said that any financial stress on an employee has an impact on productivity overall. I think that really makes the case for business owners to see workplace plans as an investment in their business as well as their people.”
Speaking from a broader perspective, Mazer noted that traditionally, the Canadian economy has tended to lag other developed countries like the U.S. in terms of productivity. With a broader adoption of good workplace retirement plans, along with other tools to help reduce Canadian workers’ financial stress, Canadian businesses have a chance to close that gap.
Mazer also stressed that over the course of the pandemic, upper-income Canadians have been able to save more and likely increase their financial security, while those on the lower rungs of the income ladder have had to stop saving or take on debt. The upshot is that the financial stress ignited by the COVID pandemic could be spreading disproportionately among lower-wage workers, and business owners with an eye on ESG could have a part to play in addressing that societal issue.
“There’s mounting evidence of significant wealth gaps between women and men, white Canadians and Canadians of colour, and Indigenous and non-Indigenous Canadians,” he added. “For employers thinking about what they can do to narrow that wealth gap, offering a plan that’s open and accessible to all their employees is a very important step.”
That statistic resonated with McCormick, as 80% of the members of HOOPP are female and women have tended to have lower incomes in retirement. And while he acknowledged that employers are going through a very challenging period in the face of COVID, he suggested that during the all-too-important process of building back, they should consider shedding any preconceptions they might have had of retirement plans being a pure expense.
“For business owners who may have preconceived notions about the impact of putting a retirement plan in place, we’d suggest they should perhaps take another look,” McCormick said. “They might not have a plan that hits all our five value drivers right off the bat, but we think it’s something to consider building toward to help their staff, their business, and society as a whole.”
It’s not just business owners who have a stake. The paper also suggests that to broaden adoption of workplace retirement plans, the industry could look at making more low-cost, high-quality options available to small and midsize employers who historically haven’t had access to them. Beyond that, there’s the need to communicate and educate investors on the value of those plans, which is where wealth advisors could play a crucial role.
“Some of what we're seeing is perhaps greater overlap between the world of individual wealth management, and the world of group benefits,” Mazer said. “There certainly is a role for advisors to help employers with setting up a high-quality plan, and helping them communicate the value of that plan. There's also a role for advisors in serving plan members, so that they can get support after they leave the employer and into retirement as well.”