Workplace savings plans must evolve for a changing workforce, says Gallagher’s Pat Leo
The Canadian Pension & Benefits Institute (CPBI) Saskatchewan conference opened with a heavy hitter on Tuesday, as one of the session speakers emphasized plan sponsors across Canada need to rethink how they structure employee savings programs or risk losing an entire generation of disengaged workers.
As Pat Leo noted in his session, most employer-sponsored savings plans remain locked in a model geared toward long-term retirement savings – a goal that feels abstract to a 26-year-old buried in student debt and priced out of the housing market.
"We're telling them, ‘You need to save for retirement. Retirement's on your side. You've got a 30-year time horizon, start saving now’,” said Leo, CFP and vice-president of Toronto retirement at Gallagher. “But at the same time, they've got other goals that they want to meet.”
After all, the traditional workplace savings plan was built for a workforce that no longer exists. Millennials now make up about 35 per cent of the Canadian workforce, with Gen Z at 20 per cent and climbing. As baby boomers and traditionalists exit the workforce, these younger cohorts will dominate plan membership rolls.
Additionally, the financial guidance people once received from parents or mentors has shifted to the workplace. That first conversation about money – how to save, where to start – is now happening through employer savings programs rather than around the kitchen table. He framed the session as a challenge to plan sponsors.
"Does our plan design really reflect our current workforce or does it reflect a workforce of the past?" said Leo. While he acknowledged the ideas might rattle some in the industry, he emphasized he wasn’t pushing for radical change – just small, deliberate adjustments that could help members tackle short-term and medium-term financial goals alongside retirement.
“My objective here is to get you thinking about your plan design, where it is today, where your workforce is today, and then think about does our plan design really reflect our current workforce or does it reflect a workforce of the past? The second thing is thinking about your plan design. Is there something you can do? Tweak it? We’re not talking about changing it drastically, but tweaking it so that you can help plan members achieve some of their short term and medium term financial goals.”
To that end, he suggests implementing a staged model for a workplace savings plan that follows employees through different phases of life rather than treating everyone as if they are saving for the same goal at the same time.
For younger workers just starting out, his focus is student debt. For example, a 26-year-old employee in a standard 3 per cent employee, 3 per cent employer-match group RRSP. In a traditional setup, all 6 per cent goes into retirement savings, which does little to relieve immediate financial pressure. Leo noted how some employers are now restructuring that formula so the employee’s 3 per cent goes to student debt repayment while the employer’s matching 3 per cent still goes into the RRSP. The result is a plan that addresses short-term financial strain without abandoning long-term retirement saving.
While he acknowledged that a 3 per cent match isn’t a rich plan, he used it because it reflects what most private-sector employers actually offer. He noted how diverting contributions away from retirement could leave workers short in the long run, calling it a legitimate concern that any plan committee would need to work through.
Still, he argued the bigger risk is the status quo. Many employees are not participating in their plans at all because their immediate financial pressures make even a small contribution feel out of reach.
"You may have folks right now that are not engaged at all. So they're not taking advantage of any plan because they feel that they can't, they don't have enough money to contribute to the plan in order to receive the match," he said.
That’s why he believes introducing flexibility could draw those people in and push participation rates higher – and even nudge employees contributing at one per cent to move up to two or three per cent.
But as employees move further into their careers and start thinking about buying a home, Leo sees a similar role for the First Home Savings Account (FHSA). Under that model, the employee contribution would go into an FHSA while the employer match continues to flow into the RRSP. His point is that the plan can help workers pursue a major near-term goal while still preserving the retirement component.
But when asked what a millennial who isn't focused on saving for a home should do, Leo acknowledged that without a goal like student debt repayment to redirect contributions toward, the standard plan in place “can continue as is.”
As for plan sponsors who want to offer a savings plan without taking on heavy administrative burden, Leo explained they should look past DB and DC pension plans as both come with pension legislation, actuarial reports, and annual or biennial filings – costs that add up fast and often require outside legal and consulting support.
The vast majority of new plans his team sets up are group RRSPs or group RRSP-DPSP combinations, which fall outside pension legislation and run on guidelines rather than regulatory requirements. He noted the DPSP component carries some added benefits for employers, though it comes with conditions that need to be met.
The appeal, he noted, is simplicity on both sides as employers can get up and running with a consultant and a carrier without lengthy legal work, and employees can transfer their money to another plan or their bank without friction if they leave.
As for when employees are raising families, he noted the same logic can extend to education savings. In that case, the employee contribution could be directed into an RESP while the employer match stays in the RRSP. He also mentions newer products that would let employees direct contributions toward mortgage repayment, with the company still matching into retirement savings. He acknowledges that approach may sound too aggressive for some employers but argues it could be sensible in workplaces dominated by younger employees.
He also acknowledged that administering a student loan or mortgage repayment program through a workplace savings plan isn’t seamless, but said the mechanics are manageable once the system is up and running.
For student debt, at least one carrier already offers repayment tracking as part of its platform, which makes the process similar to handling regular contributions. A third-party provider also offers plug-and-play tools for both student debt and mortgage repayment, handling the tracking on behalf of the plan sponsor. The employer receives confirmation reports, typically on a quarterly basis with a short lag, and makes the matching contribution once the funds are verified.
“It’s a bit funky but once you get it going, it works quite well,” he said.
Finally, for older workers nearing retirement, Leo suggests the traditional model still holds. At that stage, directing contributions straight into the RRSP remains the clearest fit. Overall, his argument is that plan design should reflect the age, pressures, and priorities of the workforce rather than assuming every employee needs the same savings structure.
“Let’s just get a plan and get people involved and then build from there,” he added.
