Differences between Banks and Insurance Companies for Group Savings Plans
Providing a program to assist employees to save for the future is an excellent way to attract and retain valuable employees. Banks and insurance companies compete as suppliers of these types of plans, but the services they provide are not equal.
The first step in designing a plan is to establish the purpose of providing a savings program. There are several alternatives available to suit your needs and those of your employees, depending on what you are trying to achieve.
If your primary objective is to provide an income in retirement for your employees, then a Pension Plan is the only solution that will ensure these funds are used for that purpose.
If you prefer to allow employees access to their funds (and yours) while they are working or in retirement, then Group RRSPs and DPSPs offer that flexibility.
Supplementary savings plans such as TFSAs offer another alternative savings solution for employees. The type of plan you require should be based on a thorough understanding of your needs and not just the solutions available from your supplier.
How do Banks and Insurance companies compare?
1. Banks do not offer registered pension plans. They will recommend a Deferred Profit Sharing/RRSP combo plan instead.
2. Insurance companies are structured as one plan with many members, providing institutional (wholesale) pricing. Bank plans are typically individual accounts that may be “grouped,” providing retail pricing.
3. Banks offer services based on the value of individual accounts, whereas insurance company plans offer a suite of services to all members equally.
4. Insurance companies offer a broad range of investments from internal and external retail and institutional fund managers. Your investment menu can be tailored to the needs of your employees. Banks typically offer a selection of retail fund managers.
5. Banks do not recognize outside consultants/advisors. This makes developing and maintaining an objective governance process difficult. Your advisor should assist you in ensuring that your plan is compliant with the CAP Guidelines, which are now monitored by the regulators. These guidelines are designed for all cash accumulation plans and are established to ensure the proper management of these plans. Monitoring the supplier services and the funds being offered may result in changes to the fund lineup and possibly a change in suppliers if warranted. The Guidelines require a periodic “marketing” of your plan to ensure the employee fees are competitive. That is another role of your advisor. Typically, your advisor will offer personalized service to your plan members onsite or in their homes during the enrollment and ongoing operation of your plan.
6. Insurance company plan-level reporting provides the financial and investment details, allowing you to better understand the effectiveness of your plan relative to its purpose. Reports will identify transfers in and out of the plan, as well as plan members making additional contributions.
7. Insurance companies will often offer a customized web portal and employee booklets identifying this program as your company’s program. This provides a direct link back to you and increases the return on your investment.
JOEL FARROW,
VICE PRESIDENT
WAYNE FARROW
Over his 40 year career, Wayne has worked with hundreds of Canadian corporations to design and manage Retirement Savings Programs involving thousands of plan members.
His hands-on approach and involvement at the Plan Member level gives him a unique ability to see things through the eyes of all the stakeholders and most importantly, the Plan Member.
He has literally been there, and done that, on the shop floor, not the 52nd floor.
This experience has allowed him to simplify the plan design and management of retirement programs in such a way that the most important elements are clearly understood by both the Plan Sponsor, and the Plan Member.
As he always says, “if you can’t explain it to an eight year old, then you don’t understand it.”
You can contact Wayne at: wayne@farrowpension.ca