Litigation Risk for Plan Sponsors?
June 4th, 2010At a conference organized by the Association of Canadian Pension Management (ACPM) on May 18, Ian Genno of Towers Watson grabbed my attention when he presented the results of Towers Watson’s 2010 survey of Canadian Capital Accumulation Plan Sponsors.
One of this survey’s key findings was that 66% of plan sponsors believe that litigation around these plans will increase in the future. The top three reasons are:
- Inadequate retirement income realized
- Poor investment performance
- Inadequate communication and education provided
Few plan sponsors believe members are making informed decisions. For example, only 23% agree or strongly agree that “Employees have realistic expectations of what the employer sponsored retirement plan can provide”. Only 15% agree or strongly agree that “Participants have an independent financial advisor”.
Plan sponsors are increasingly turning to software to help the members evaluate the long-term impact of rising inflation, increased longevity and investment risk.
Interestingly, Ian also referred to the fact that 54% of respondents do not measure the success of their communications initiatives.
Historically, we have seen many plan sponsors who have been nervous about engaging a firm to provide one-on-one financial planning advice to their employees, because of the potential litigation arising from the advice provided. I believe that one implication of the quoted studies is that a greater risk of litigation may arise from not providing adequate communication in a form that engages the plan members.
The other clear message is that any communication initiative should include a mechanism for measuring the success of the approach used and the increase in understanding that has resulted.
Patrick Longhurst
Tags: plan sponsors
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