Pension plans in small companies are an endangered species. Companies aversion to pension plans is understandable – classic defined benefit pension plans put the financial risk on employers, and all registered plans require a level of administration that can be time consuming and expensive. So employers are reluctant to sponsor pension plans of any sort.
Saving for retirement, nevertheless, is crucial. The public plans – Old Age Security and the Canada/Quebec Pension Plan – are important, but are not adequate except for those with the most minimal pre-retirement earnings.
Pension plans in our parents’ day provided retirement income, but they did more. They removed the need for employees to plan much. The company, simply by setting up the pension plan, did the planning. All our parents had to do was stay with the same company for their entire career –which most people did.
As companies withdrawal from pension plan sponsorship, they have also created a new need for financial planning.
When employees are on their own to save for retirement, they need better knowledge and guidance. Very few employees are equipped to know how much to save (assumptions are usually too small), and how to invest successfully (ill-informed choices are common).
Employers may not wish to take on the costs and risks of sponsoring a pension plan. They should consider taking on some responsibility for financial education of their employees. Employers should encourage saving for retirement, and help their employees understand and plan. The cost of financial education would be modest and predictable. Employees would appreciate its value as an employee benefit. It would enhance the company’s reputation as a prime employer.
Senior executives often enjoy company-provided financial planning – but there is a real need for everyone.
Helping employees plan their finances – a winning strategy in the effort to attract, retain and motivate the best employees.