Prioritizing Your Retirement Plan

These past few years have been challenging for employers and employees alike, but every challenge presents an opportunity for growth and improvement. Companies that embrace these challenges and look for ways to set themselves apart to become a destination for employees will be at a competitive advantage. Let's look at some reasons companies should strongly consider giving their employees a more generous retirement contribution.

Every year many companies get together and do strategic planning, budgeting, forecasting, etc. They may identify short-term and long-term goals and plans to reach those goals as part of this process. Think about the short- and long-term financial incentives companies can reap by offering a high-performing retirement plan.

Short-Term Considerations

With the rise in working from home and the gig economy, employees have greater flexibility to change jobs. According to SHRM (Society for Human Resource Management), the average monetary impact of the hiring process ranges from roughly $5,000 to $15,000, depending on the type of position. This includes things such as advertising the new position, interviewing, background checks, skill assessments, and all the work hours invested in each step of the hiring process. The average time to fill a position can range from 21 days in hospitality to as many as 94 days for highly skilled workers. This cost assumes you are hiring the right person for the job. If you hire the wrong person, those costs could be substantially higher – and consider the impact an inadequate employee has on other members of your organization.

Many employees across several industry surveys have indicated a preference for improved benefits over a pay increase. They consistently rank additional retirement contributions at or near the top of the list. Making a more generous contribution to your retirement plan could help reduce turnover and, as a result, offset part of the cost of those additional contributions. Employees are telling us they value additional retirement plan contributions, and it's time we listen and take action.

Long-Term Considerations

The largest expense for many companies after salary is the cost of their healthcare plan. A recent stat an employee benefits broker shared with me was that the top 10% of your claimant population drives roughly 90% of the overall health plan cost. As employees age, they become more likely to fall into the high claimant population, causing you to spend more on your health benefits.

Suppose you have employees who typically retire at age 65, but you decide to offer a more generous, higher-performing plan. In that case, you may be able to move the average retirement age of your employees to 60. Think about the impact that could have on your healthcare spending.

Additional Considerations

On top of the financial reasons, it may make sense for companies to be more generous with their retirement plan contributions for reasons that positively affect their employees.

Employees who don’t experience or have low financial stress are more productive, tend to have more positive relationships, are happier, and tend to be in better physical health. Imagine your work environment today and how much better it could be if your employees were happier, more productive, had better relationships, and were healthier overall. That’s an environment employees will love being a part of for years to come.

Finding ways to build loyalty with your employees, fostering a strong culture, and expressing through words and actions to your employees how much you value them could be what keeps you up at night. Contemplate this excerpt from The Fiduciary Formula by Josh Itzoe.

"In 2018, Visa changed its matching formula to 200 percent of employee contributions up to 5 percent, for a maximum match of 10 percent. Visa employees who save at least 5 percent capture the full match and achieve a savings of 15 percent. Visa also increased the automatic enrollment default percentage to 5 percent. If you factor in automatic escalation increases, it’s possible (even likely) employees at Visa can reach a threshold of 20 percent within five years of hire. The company explained the move by saying, “With the additional 401(k) match, Visa’s US employees will enjoy a sustained benefit, consistent with the role they will play in building our business.”

This is an incredibly generous match from Visa, but it's the last quote you should ruminate on. "With the additional 401(k) match, Visa's US employees will enjoy a sustained benefit, consistent with the role they will play in building our business." Now imagine, instead of Visa, it is your company that delivers the message to your employees. Not only is this a fun message to deliver, but as this article laid out, there are some strong reasons you should want to do this for your employees.