Employer-sponsored retirement plans: HR's new recruiting tool?

To compete in today's labor market, an employer-sponsored retirement plan is considered a "table stake."

(Photo: Shutterstock)

In the twilight of the pandemic, the labor market is tighter than ever. Employers must do all they can not only to attract employees, but also keep the ones they already have – which includes beefing up traditional benefits like employer-sponsored retirement plans.

That’s according to Navigating the Pandemic: A Survey of U.S. Employers, a report released earlier this month by the nonprofit Transamerica Institute and its Transamerica Center for Retirement Studies (TCRS), both based in Los Angeles.

“We’re all reading the headlines in real time what’s been happening in the labor market — so many people who lost their jobs during the pandemic shutdowns are holding off finding work, and there’s also a lot of activity among job changers,” said Catherine Collinson, CEO and president of the Institute and TCRS, in an interview.

Who is more likely to offer a retirement plan?

In today’s highly competitive environment for attracting and retaining employees, an employer-sponsored retirement plan is considered a “table stake,” Collinson says.

“Job seekers are placing tremendous value on retirement plans with matching contributions – if employers don’t have such plans, now is the time to investigate them,” she says.

Large and medium-sized employers are more likely than smaller employers to have such plans, though as the War for Talent in 2021 continues to escalate, more organizations with 100 or less employees may reconsider, Collinson says.

In late 2020, the nonprofit surveyed 1,900 employers in all three size categories, and found that large employers (55 percent) and medium companies (59 percent) are more likely than small companies (30 percent) to believe that offering an employee-funded retirement plan package is important for attracting and retaining employees.

Fifty-two percent of employers offer a 401(k) or similar employee-funded retirement plan to their employees. Employee-funded plans are more commonly offered by large (90 percent) and medium companies (83 percent), compared with small companies (44 percent).

Company-funded defined benefit plans are offered by 17 percent of employers.

About four in 10 employers (41 percent) do not offer any retirement benefits to their employees. Small companies (50 percent) are significantly more likely to indicate they do not offer any retirement benefits, compared with medium (4 percent) and large companies (1 percent).

Not offering now, but maybe soon

However, more than a third (37 percent) of those who don’t currently offer such benefits say they are likely to begin sponsoring a plan in the next two years – and many would consider joining a multiple employer plan or a pooled employer plan.

“These plans are an especially good option for small and medium-sized employers,” Collinson says. “Joining an MEP or PEP gives employers some infrastructure, access to individual investments, as well as efficiencies in the overall pricing structure. It’s the plans’ treasurers and fiduciaries who are responsible for the administration, which lowers costs for employers.”

Eligibility, matching, plan design, transitioning support

Other key survey findings include:

– Among employers that offer a 401(k) or similar retirement plan to their employees, only 51 percent extend eligibility to part-time workers. Large (64 percent) and medium companies (51 percent) are somewhat more likely to extend eligibility to part-time workers than small companies (46 percent).

– Ninety-two percent of plan sponsors make an employer contribution as part of their 401(k) or similar plan, including 98 percent of both large and medium companies, and 89 percent of small companies. Large (87 percent) and medium companies (85 percent) are more likely than small companies (66 percent) to make a contribution in the form of a company match.

– Sixty-four percent of plan sponsors offer a Roth 401(k) option. Large (77 percent) and medium companies (70 percent) are more likely to offer this feature than small companies (58 percent).

– Twenty-five percent of plan sponsors have adopted automatic enrollment, including 23 percent of small and 27 percent of both medium and large companies. Among them, the default contribution rate is 10 percent (median) of an employee’s pay.

– Sixty-eight percent of plan sponsors have adopted automatic escalation, a feature that automatically increases participants’ contribution rates annually. Automatic escalation is more common at large (80 percent) and medium companies (75 percent) than at small companies (63 percent).

– Among employers that offer a 401(k) or similar plan, small companies are generally less likely to offer their employees assistance with planning, saving and investing for retirement, compared with medium and large companies.

– For all sizes of employers that offer such plans, just over a third offer support to workers nearing retirement to help them better transition their savings and finances. Current support includes these offerings:

“It’s perplexing that employers aren’t doing more to help their employees transition into retirement,” Collinson says. “Plan sponsors have spent years educating employees about accumulating savings, so it’s just kind of counterintuitive that they don’t offer guidance about how to combine those savings with other sources of retirement income, and help workers put together a plan to make sure they don’t spend too quickly and don’t run out of savings.”

READ MORE:

Recommended Stories