There’s never been a better time to be a worker saving for retirement.
Companies, as part of an effort to retain and recruit workers during the Covid-19 era, are dramatically improving their employer-sponsored retirement plans, according to Pensions & Investments, a trade publication.
“The largest employers are adding benefits to try to retain employees and the retirement plan is one of the key benefits,” said Bonnie Treichel, the chief solutions officer at Endeavor Retirement.
KPMG, for instance, is changing its matching formula. The company started this year giving employees 6% to 8% of their total eligible earnings instead of the current match of 25% on the first 5% of base pay, according to the report. In essence, the firm will “no longer require employees to contribute their own money to receive the firm’s money,” Jenny Lisena of KPMG is quoted as saying.
In his practice, Mike Kane, a managing director with Plan Sponsor Consultants, said more and more of his plan sponsor clients want to discuss non-matching discretionary contributions, especially in cases where employers are terminating defined-benefit plans.
If you’re thinking about quitting your job during The Great Resignation, you should consider all the new and changed benefits potential employers are offering.
Other employers, according to the P&I report, are looking to reduce eligibility requirements and change vesting schedules. At present, many employees must wait six months before they can contribute to their company’s 401(k) plan. And, typically, the employer’s contributions have a graded vesting schedule, with 100% becoming vested after five or six years.
Employers are making these changes given recent workforce trends, including heightened competition for workers. Consider: 34% of workers are unsettled in their current role, according to Principal Financial Group’s quarterly Retirement Security Survey.
Specifically, the Principal Financial Group survey found that 12% of workers are looking to change jobs, 11% plan to retire or leave the workforce and 11% are on the fence about staying in their job. Among workers’ top motives in considering a job change:
- increased pay (60%);
- feeling undervalued in their current role (59%);
- career advancement (36%);
- more workplace benefits (25%); and
- hybrid work arrangements (23%).
And the most important retirement plan features that workers consider when evaluating new job opportunities are:
- an employer match (91%);
- eligibility (80%);
- vesting requirements for company matches (74%);
- investments options on offer (73%); and
- withdrawal options at job change or retirement (70%).
Noteworthy too is the fact that nearly eight in 10 (77%) workers said the pandemic has driven them to focus more on saving for retirement, according to Principal’s survey.
Employers are also feeling worried about workers being unsettled in their current roles: 81% are concerned about increased competition for talent, according to Principal. And a recent Willis Towers Watson survey found that more than 77% of U.S. employers report having problems finding and keeping employees.
One benefit of employers improving retirement plans is the message that it sends to current and prospective employees.
“Retirement is a key aspect, whether that be the prospective employer’s contributions to the defined contribution and defined benefit plan(s), HSA, equity compensation, and deferred compensation plan availability if the individual qualifies,” said Chad Griffeth, a vice president with Captrust. “It’s been my experience that participants will view a company’s contributions to retirement and equity compensation plans to be a sign of a positive culture that values its people.”
To be fair, it’s mostly large employers that are improving the features of their 401(k) plans. Smaller companies, according to Treichel, are focused less on adding benefits and more on the turnover among the people running the plan.
Turnover, Treichel said, “is so high that it is hard to keep up with basic blocking and tackling of running the plan. “In other words, the HR turnover is so high that making plan amendments for changes to the plan isn’t the highest priority,” she said. “Instead, it is more about keeping the plan running.”
At the same time, Treichel said there is the competing priority of bringing benefits back that might have been paused during Covid or keeping up with other HR issues as a result of Covid. “Turnover is a problem for companies of all sizes but in smaller companies, because turnover is such a problem – they aren’t able to proactively focus on adding benefits – it’s about keeping the plan going,” she said.
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How to Take Advantage of New Work Benefits
“Employers, vendors, and policy makers regularly tinker with the resources that employees rely on to build and preserve wealth, so vigilance is always necessary,” said Tony Verheyen, founder of The Richfield Companies.
Kane said employees who are looking to change jobs ought to benchmark the 401(k) benefits by national averages and by industries. Start by looking at PlanSponsor magazine’s Defined Contribution Survey, Deloitte’s and PWC’s annual 401(k) studies, Brightscope, and The BrightScope/ICI Defined Contribution Plan Profile.
Verheyen said employees should also talk with their HR/employee benefits departments about improving the employer’s 401(k) plan. “The people that I see optimizing workplace retirement plans do a really good job tapping their HR and benefits colleagues, and vendor reps, for insights and action,” he said. They’re often DIY financial planners that don’t hesitate to ask for help.
In his experience, Verheyen said some of the successful ones don’t care about being perceived as pests. “They’re not rude or disrespectful, but they clearly know how to get their retirement partners to work for them,” said Verheyen. “This is especially true when plan features are new or modified.”
Treichel also recommends that employees communicate their needs to their employers. “Employees are in the driver’s seat right now and if they communicate about their needs, i.e. student loan benefits, retirement benefits, etc., they are in a position to potentially have their needs met,” she said.
Treichel also recommends that workers take advantage of the benefits provided. “If your employer does offer a better match – don’t leave money on the table,” she said. “Often employers provide additional benefits and employees don’t always take advantage.”
Regardless of their stage of life, the successful workers also set time aside once or twice a year to make sure they understand how things around them are changing, said Verheyen. “They review their personal goals and situations, and take steps to make the most of workplace resources like their 401(k) match, financial wellness coaches, student debt support, and HSAs.”
What’s more, Verheyen said successful DIY financial planners don’t assume that workplace solutions are always in their best interests. “Whether they are new to the organization or have been there a while, they do their own homework,” he said.
For workers who plan on switching jobs, Treichel had this advice: “If you are going to quit your job during the great resignation, make sure you plan ahead and think long term. The gig economy is a great option for many people but it doesn’t offer a 401(k), so don’t forget longer-term savings and planning for short-term benefits.”