(December 5 – 10:20 ET) – A Towers Perrin survey released today says that government limits on registered pension plans restrict employees’ ability to save adequately for retirement.

This fact has pushed employers to offer Supplemental Employee Retirement Plans to a broader group of employees than in the past, among other saving systems. The survey shows that SERPs are now a core element of total remuneration and employee retention strategies, with approximately 75% of respondents having a SERP.

Half of the respondents now offer SERPs to broad-based employee groups instead of strictly to executives. The key reasons cited for establishing SERPs were to address the impact of the limits imposed by the Income Tax Act and to help attract and retain key employees. Half of the respondents established their SERP programs in the last five years.

“As more employees bump into tax limits on registered pension benefits, employers realize they need to rely on SERPs to deliver on their intended pension promise,” said Lyle Teichman, a principal in Towers Perrin’s Retirement Practice. “This situation will become more acute as wages continue to rise.”

The survey covers more than 260 Canadian organizations from a broad spectrum of industries. Of those surveyed, 59% of respondents have more than 1,000 employees in Canada, and 82% have annual Canadian revenues exceeding $100 million.

Despite the prevalence of SERPs, the study notes that there are some underlying issues that may become problems for individuals or companies in the future:

  • 67% take no steps to fund or secure the SERPs’ benefits;
  • 12% set aside assets in a trust fund to meet the liabilities;
  • 17% make some other provisions for securing funds for their SERPs; and
  • only 49% issue periodic SERP benefit statements to employees.

The analysis of the findings stressed the need for a funding strategy to ensure the security of benefits. “Many companies have used Retirement Compensation Arrangements as their funding strategy, despite the punishing tax impacts,” said Teichman. “Now that corporate and capital-gains tax rates are falling, the use of funded RCA’s may now decline in favour of other, more tax-effective funding strategies.”

The survey further highlights the need for better documentation and communication of SERPs. “Good documentation,” says Colbert, “is in the best interest of both the employee and the employer. Also, a SERP won’t help you retain experienced workers if they don’t know or understand the value you’re providing.”
-IE Staff