Becoming Aging-Friendly

How to enhance employee benefits in a talent-competition labor market

by Catherine Collinson

Today’s unemployment rate in the United States is the lowest that it has been in almost 50 years. While this is a sign of a strong economy and bodes well for job-seekers, employers may be facing headwinds in their recruiting efforts.

A competitive employee benefits package can be highly effective in attracting and retaining talent. With the help of their benefits advisors, now is a good time for employers to evaluate and update their benefit offerings. In the 18th Annual Retirement Survey (2017), nonprofit Transamerica Center for Retirement Studies® (TCRS) surveyed more than 6,300 workers and 1,800 employers and, in doing so, it identified specific opportunities for employee benefits advisors to share with their clients.

Retirement Benefits as a Powerful Recruiting and Retention Tool

Employers may find surprising the extent to which workers value retirement benefits. According to the survey findings, 88 percent of workers consider a 401(k) or similar plan a very/somewhat important benefit. Moreover, 81 percent of workers say that retirement benefits offered by a prospective employer will be a major factor in accepting a job offer.

Six in ten workers (59 percent) say they would be likely to switch employers for a nearly identical job with a similar employer that offered a retirement plan/better plan. Flight risk is greatest among the 70 percent of Millennials who share this sentiment. The majority of Generation X workers (57 percent) would be likely to switch also. Baby Boomers (44 percent) would be less likely to switch employers for a retirement plan/ a better retirement plan.

A Retirement Plan Checklist

In reviewing the competitiveness of their retirement benefit offerings, advisors can add value by discussing with their clients opportunities for enhancing their 401(k) or similar plans.

Eight specific opportunities worthy of consideration include:

1. Offer a retirement plan, if not already doing so
Only 71 percent of workers are offered a 401(k) or similar plan by their employers. Take advantage of tax credits available for starting a retirement plan. Consider joining a multiple employer plan (MEP) if a stand-alone plan is not feasible.

2. Evaluate the utilization and effectiveness of professionally managed offerings
…such as “professionally managed” accounts, target date, and target risk funds. Three in five workers (59 percent) who participate in their employer-sponsored 401(k) or similar plan say they use some form of professionally managed offering. Such offerings enable plan participants to invest in a manner that is tailored to their goals, years to retirement, and/or risk tolerance profile.

3. Extend retirement plan eligibility to part-time workers
Part-time workers (47 percent) are far less likely to have access to a 401(k) or similar employee-funded retirement plan compared to full-time workers (77 percent). Forty-two percent of part-time workers say they are not offered any retirement benefits by their employer, compared to just 17 percent of full-time workers. If extending eligibility to part-time workers is not practical, provide workers the ability to contribute by payroll deduction to an IRA.

4. Consider adding automatic enrollment to increase retirement plan participation
Eight in ten workers (81 percent) find automatic enrollment to be appealing. If automatically enrolled, workers indicate the appropriate default contribution rate would be 7 percent (median). Additionally, consider adding or enhancing automatic escalation. Three in four workers (75 percent) are either somewhat or very likely to use a feature that would allow their employer to automatically increase the contribution rate in their 401(k) or similar plan by 1% each year, until they choose to discontinue the increase.

5. Limit the number of loans available in the retirement plan
One in three workers (33 percent) has taken some form of loan, early withdrawal, and/or hardship withdrawal from a 401(k) or similar plan or IRA. Educate employees about the ramifications of taking loans and withdrawals from retirement accounts. Educate employees about the need to prepare for emergencies and non-routine expenses to avoid incurring excessive debt.

6. Structure matching contribution formulas to promote higher salary deferrals
In other words… instead of matching 100 percent of the first three percent of deferrals, change the match to 50 percent of the first 6 percent of deferrals.

7. Provide education that is engaging and accessible
Forty-two percent of workers indicate that a good starting point which is easy to understand would motivate them to learn more about saving and investing for retirement. Some specific opportunities include information about the Saver’s Credit (an IRS tax credit), how to calculate a retirement savings goal, and the basic principles of asset allocation. For new hires, provide education about the plan and, if available, the option to roll over their accounts from previous employers into the plan.

8. Offer pre-retirees greater levels of assistance in planning their transition into retirement
…including education about retirement income strategies for managing savings to last their lifetime; retirement plan distribution options; and the need for a backup plan if forced into retirement sooner than expected (e.g., health issues, job loss, family obligations). Provide information about Social Security and Medicare.

Several bills have been recently introduced in Congress. Keep abreast of any changes in the laws to determine how your clients’ retirement plans may be affected. Legislative proposals include: a new automatic enrollment safe harbor; the expansion of MEPs, including “open” MEPs; amended rules to help cover part-time workers; expansion of the Saver’s Credit; enhancement of start-up tax credits; and the ability to consider student loan repayments as elective deferrals to enable them to be matched.

Closing the Gaps in Employee Benefit Offerings

Health and voluntary benefits, in addition to retirement benefits, can enhance workers’ financial security (e.g., health insurance, disability insurance, life insurance, employee assistance programs, workplace wellness, financial wellness programs, long-term care and other insurance). A pervasive gap exists between the percentages of workers believing these benefits to be important versus those who are actually offered them.

For example, 95 percent of workers indicate that health insurance is very/somewhat important but only 77 percent are offered this benefit by their employers, thereby representing an 18 percent gap. Eighty-eight percent of workers indicate a 401(k) or similar plan is a very/somewhat important but only 71 percent are offered one, representing a 17 percent gap. For other types of benefits asked about in the survey, the gaps are much wider.

A robust offering of health and voluntary benefits provides insurance protections and can help workers mitigate out-of-pocket expenses from certain financial shocks and, ultimately, helps them to protect their retirement savings and long-term financial security.

Become an Aging-Friendly Employer

Today, people have the potential of living longer than in any other time in history – and workers are extending their working lives beyond traditional retirement age. By fostering an aging-friendly work environment, employers can attract and retain employees of all ages and cultivate a high-performing culture with a multi-generational workforce. Most employers (70 percent) consider their companies to be “aging friendly” by offering opportunities, work arrangements, and training and tools needed for employees of all ages to be successful. However, only 23 percent of employers have adopted a formal diversity and inclusion policy statement that specifically includes age among other commonly referenced demographic characteristics.

One final opportunity that advisors should discuss with their clients is the need for phased retirement offerings to complement their employee benefit offerings. Many workers are envisioning a flexible transition into retirement, for example, by switching full-time to part-time and/or working in different capacities. Only 20 percent of employers offer a formal phased retirement program with specific provisions and requirements for employees who want to transition into retirement. Phased retirement programs can be a win-win situation for both employers and pre-retirees. It can help employers with succession planning, training and mentoring, and ensuring smooth transitions when employees fully retire – and it can help pre-retirees who are envisioning a flexible transition. ◊