Time to reframe the company pension plan (and instantly become an employer of choice)

When a company offers its employees something special, whether they realize it or not, they are aiming to be an employer of choice. While companies that offered defined benefit pension plans were common in the 1980s and 1990s, they are much rarer now. If you are one of those companies, you’ve made a special commitment to those employees that has a real cost to you. Since you’ve made that commitment, I implore you to get full value for it. Tell your employees what you are doing. Show them why it’s special. By making the commitment, you’re walking the walk. And that gives you the right to talk the talk.

If you’re not doing this already, the time to start talking the talk is now. Not tomorrow, not next month, and certainly not next year. Do it now!

Why am I so passionate about this? I’m passionate on your behalf. Maybe you are, but if you’re not, you should be and I’m going to convince you of just that.

A fairly sizable number of recent surveys and research coming from both consulting firms and academia have said in a variety of different ways that more than any other benefit offering, employees across the US and in all age groups want excellent retirement benefits. It’s something they are concerned about. Among the groups that view retirement benefits as very important, the single thing they want the most is guaranteed lifetime income. If you’re providing them with a pension, that’s exactly what you are giving them – a guaranteed lifetime income opportunity.

Related: The retirement benefits 80% of employees are asking for

That’s right; you’re giving them exactly what they want, but believe it or not, if you’re not telling them, it’s fairly likely that they don’t know it.

Let me put that in different terms for you. You’re spending likely between 5 and 10% of payroll on the single thing that employees say they want the most and they don’t know it. That’s not their fault.

I want you to tell them what you are giving them free of charge to them that they likely can’t get many other places in your area. Don’t call it a pension. While the term may seem obvious to you and me, it might not be to them. Don’t call it defined benefit. That’s even more confusing.

What employees want: guaranteed lifetime income

Call it lifetime income. Use the word guaranteed. That is what the surveys say they are asking for. Guaranteed lifetime income.

Use their words. Speak to what they want. To add to that, it’s okay to tell them that if they have a spouse, the default option for the plan – the one they’ll get if they don’t choose something else – will provide guaranteed lifetime income to them and to their spouse. And they get it because they work for you. That’s really something special, particularly in the 2020s. Tell them! Now!

In addition to the pension, you probably also offer a 401(k) plan or something similar. That’s wonderful. You’re an employer that employees want to choose. Tell them what they need to know so that they will choose you.

One of the reasons that many companies stopped offering pension plans was that their employees didn’t understand them, so the companies felt like they were not getting value commensurate with their spending. If the issue really was that employees didn’t understand them, you can fix that. Put things in simple terms. Maybe like this:

“We offer our employees not just one, but two great retirement plans as part of our overall retirement program. You get both of them.”

“The first plan is set up to provide you with lifetime income. You can’t outlive it. It pays you a monthly amount until you die and if you’re married, it can also pay your surviving spouse lifetime income until they die if they happen to outlive you. It’s guaranteed lifetime income. And if that’s not enough, we pay the whole cost of that plan. We give it to you simply because you are a valued employee and we want you to remain with us.

“You might want additional money in retirement. If you do, that’s why we also offer a 401(k) plan. It gives you the opportunity to save money on a tax-favored basis as you choose. That’s right; you get to personalize that piece of your retirement benefit. When you retire, it’s going to be there to supplement the guaranteed lifetime income that we pay for. You get to use it on an as-needed basis that is personalized to your circumstances.”

Let’s talk about what I said, but perhaps more importantly what I didn’t say. I didn’t use any of those words that employees historically have not understood: pension, defined benefit, defined contribution.

Instead I used words that every survey on the topic says employees want: guaranteed lifetime income, benefits that are personalized, and valued. Employees want those things and they want to feel valued. Let some other company use the fancy labels.

Related: Pension-izing employer-sponsored defined contribution retirement plans

If you’re paying for these benefits today, then communicate them today. Don’t just offer the programs that could make you an employer of choice. As long as you are offering them, you should benefit from them as well. Don’t lose another employee because they don’t know how wonderful a company they work for. If you haven’t done it already, start the messaging today.

Whatever you do, keep it simple. Either words work or they don’t. In 2022, some of the very key words that employees tell us they value are personalized and guaranteed lifetime income.

John Lowell is an Atlanta-based actuary and partner with October Three Consulting LLC. He has more than 35 years of experience consulting on corporate retirement plans ranging in size from just a few participants to hundreds of thousands.