Five Steps to Setting up a DC Pension Plan
Our latest expert commentary piece on BenefitsCanada.com
You’ve decided to launch a defined contribution pension plan for your employees, but you don’t know where to begin. What’s the answer? How do you decide what’s right for your organization? Let’s take this step by step.
Step 1: Purpose
The first step is determining the intention and objectives of the retirement program. In other words, why are you doing this? Is the intent to provide your employees with a long-term financial benefit that will improve retirement readiness, or will the plan be offered as a means of attracting and retaining talented individuals?
Whatever your reason is for sponsoring a plan, setting one up isn’t a straightforward task — it requires planning and proper execution. An understanding of your employee demographics, turnover and compensation package will help you design a plan that meets your objectives and allows you to measure its success over time. Keep in mind, defined contribution plans transfer investment risk from employers to employees, but they don’t absolve sponsors of their fiduciary responsibility to the beneficiaries of the plan.
Step 2: Plan design
There are a number of plan design options to take into consideration. For instance, you must determine if the plan will be mandatory, contributory or non-contributory; who is eligible to join the plan; if there will be a waiting period; and what the contribution formula will be. All of this information will be documented in the plan texts.
Step 3: The statement of investment policies and procedures
The statement of investment policies and procedures is a mandatory document for any registered pension plan and is filed with the regulator. This document formally delineates your pension governance structure by establishing roles and responsibilities, conveying the investment philosophy, determining the objectives and policies for the investment of assets, and satisfying other requirements of the regulator. It’s reviewed at least annually and is periodically updated as necessitated by changes in regulation and best practices.
Continue reading here to learn about steps four and five.