Many employers who provide pension plans have shifted from the traditional defined benefit (DB) plan, where the employer takes on most of the risk of providing fixed retirement benefits, to defined contribution (DC) plans, where the employee bears all of the risks.

Related: Have we seen the last of the gold-plated pension?

Although employers commonly enrol all eligible employees in DB plans, most DC plans are optional. Employees choose whether or not to participate.

A typical plan might allow you to contribute 3 – 5% of your salary, which would then be matched (up to 100%) by the employer.  This is like getting an enhanced compound growth rate.

For example, if an employer matches 50 cents for every $1 contributed, that’s an automatic 50% return.


A Great West Life study showed that participation is around 80% in DC plans and 60% in Group RRSPs, with only 12% choosing to contribute the maximum allowable.

This leaves 20 – 40% of eligible employees not participating.

Why is that?  You wouldn’t turn down a bonus, so why would someone leave this guaranteed money on the table?

Focus on present needs

Research has shown that lower income workers are less likely to participate in pension plans.  Part-time workers and those who feel their positions are temporary often opt out.

Too many fund options

Your employer will offer you a variety of investment funds to choose from.  You are responsible for making the choice.

Related: Why options mean freedom when it comes to retirement

In the past DC members were limited to very traditional and conservative investments – GICs, money market funds, fixed income options.  It was not possible to achieve optimal diversification.

Now, plans have become much more diverse with many more options.  The pension plan at one of my former places of employment had 110 funds to choose from.

When shown such a list, with only a brief description and past performance results, many employees become overwhelmed.  They can’t make a decision and then ignore the whole process.

Not enough advice

Many employees are not confident they can make a good investment decision on their own because they have no support or advice.

A brochure about the products and a questionnaire to help assess risk tolerance is just not enough.

Final thoughts

With defined contribution pension plans and group RRSPs becoming more the norm, employers need to make participation in these plans mandatory for all eligible full-time employees.

Related: Decoding your company pension plan

Retirement income will depend on the account balance at retirement and the performance of an investment will always carry some uncertainty.  The final value is not guaranteed.

Employers must:

  • Encourage early enrolment
  • Promote meaningful contributions
  • Provide appropriate investment choices

It is up to the employer to ensure employees have the necessary advice, support and education to make informed decisions.  Most successful plans are ones with fewer investment options.

Related: Why investors should embrace simple solutions

Employees should be equipped with the tools they need to create the desired outcome – a retirement with adequate income.

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