Competition for top talent is not a new phenomenon. It is nevertheless concerning that 81% of plan sponsors say they are concerned about increased competition for employees1 . With domestic unemployment rates near historic lows (3.5% as of July 20222 ) and half of U.S. workers currently looking for new jobs3 , employers can no longer rely on salary alone to make their jobs attractive to current and prospective employees.
With this environment in mind, employers should consider how their employee benefits and, more specifically, their defined contribution plan, can be used to improve recruitment and retention outcomes. In this paper, three of our defined contribution leaders will share client trends and best practices for designing a retirement plan to recruit, reward, and retain today’s and tomorrow’s workforce.
Build a Defined Contribution (DC) Plan that Exemplifies Your Organizational Culture
Chris Dall, CFA
Senior Product Leader, Defined Contribution Solutions
Financial security is an essential building block of well-being. When people do not feel financially secure, it takes a toll on their physical and mental health. This significantly increases the importance of helping employees understand how they can improve their financial wellness and the role their employer can play.
Organizations can differentiate themselves to employees by operating their retirement plans as an example of their workplace culture. Specifically, organizations can show their commitment to their employees’ financial well-being through providing benefits and financial education that help employees to become retirement ready. As part of this, it is also important to include a focus on employees at all income levels within an organization to help drive equitable retirement outcomes.
With this in mind, there are certain best practices that companies can consider with respect to their defined contribution plan(s) to show this commitment to employee financial wellness:
- Identify and prioritize groups that need the most help – Recordkeeper data about plan participants at the individual and aggregate level can be used to identify which employees need the most help (e.g., those with low deferral rates or low balances), allowing you to target communications and initiatives.
- Provide inclusive and accessible communications/education – When plan sponsors regularly use inclusive language and focus on accessibility, especially in retirement documents and communications, they can help employees to feel heard and understood. This can help drive an increase in participation and engagement.
- Expand eligibility requirements. Expand eligibility for employees to make elective deferrals to your defined contribution plan (so that certain groups – such as part-time employees – aren’t excluded). For example, consider reducing the minimum number of hours of service required.
- Expand automatic features – Discussions of “automatic features” typically focus on just automatic enrollment. Three additional considerations include setting a meaningful default deferral rate (e.g., 6%), adding automatic escalation (whereby deferral rates increase automatically by a set percentage each year), and automatic re-enrollment (whereby each year employees need to periodically re-opt out of enrollment in the defined contribution plan).
- Employ minimum annual matching contribution formulas – Create minimum annual employer contribution levels (e.g., matching the greater of 100% on the first 4% in employee deferrals or $2,000 in annual contributions).
- Add a profit-sharing component to the 401(k) plan – Beyond the positive optics of incentivizing employees based on the financial outcome of the organization each year, plan sponsors can consider being creative with the allocation formula and vesting schedule of the profit-sharing component to boost retention.
Once you create your story (i.e., create a great retirement program), it is important that you equip your recruiters and your managers with the tools they need to tell that story. Recruiters should be able to explain the retirement program and its benefits as a key part of the compensation offering and why a prospective employee would want to join your organization. Managers should be reinforcing the message with current employees, making sure they are taking full advantage of the benefits offered. This creates a culture where all employees are very clearly seen and valued as a key priority, creating an important differentiator in recruiting and retention efforts. Proving all employees are valued and supported is not just the right thing to do, it can also give the organization an advantage in recruiting.
Provide Exceptional Employee Education
Director of Client Services, Defined Contribution Solutions
Providing a well-designed retirement plan is a standard practice for attracting and retaining employees. A thoughtful and holistic education program that suits your workforce and includes targeted financial wellness training is one way to set your plan apart from others. While the first step of helping employees to understand the benefits of participating in their defined contribution plan is important, it is equally important to help them participate in a way that helps drive improved retirement outcomes. Consider these ideas for making your employee education program a viable recruiting and retention tool:
- Deliver education to fit disparate learning styles – Every workforce is different. Employee education strategies need to meet a given workforce where it is. Some prefer in-person interaction while others may prefer email correspondence or online resources. An effective education program customizes not only the content provided to meet the specific needs of your employees, but also offers education in different media types (e.g., e-mail, video, inperson sessions, etc.) to reach your entire workforce.
- Recognize the importance of financial wellness – Many employees find it difficult to save for retirement due to more immediate financial obligations. Therefore, many employees say access to financial wellness resources are a key benefit. Employers who provide financial education as part of their retirement benefits or offer access to separate financial wellness tools build loyalty with their workforce and will have a clear advantage in recruiting and retention.
- Provide access to personal consultation – For assistance with questions or concerns related to their retirement plan, many organizations only offer employees access to large, impersonal call centers. Worse, some don’t even offer that. Smart employers see the value in providing access to unbiased financial consultation as part of their benefits package, including sessions employees can attend with their spouse or partner.
The last thing I would recommend considering is something you may not hear very often: your organization must be able to confidently describe your education/benefits program. Train managers and supervisors to be advocates for your benefits plan to existing employees. Arm the human resources department to be able to describe the quality and value of your benefits package when conducting interviews. After all, if a tree falls in the forest does anyone hear how great your employee education program is?
Offer Benefits Beyond the Retirement Plan
Domenique DiSilvio, CIMA®
Director of Client Services, Defined Contribution Solutions
Many benefits discussions focus on increasing participant engagement with the employer retirement plan. What if an employer wants to think outside of the box (or plan)? Many employers are re-examining their entire benefits package with an eye toward making changes to reflect the benefits that today’s employees value the most. In some cases, the results have been quite surprising. I find the benefits aimed at supporting mental health and emotional wellbeing amongst the most interesting. Here are some examples:
- Pet Insurance – Employees who have pets have most likely developed deep emotional bonds with their animals. They often consider them to be important members of the family. Employers recognize this and the number of companies offering pet health insurance as a voluntary benefit continues to rise. Offering this benefit is one way for employers to show employees that they recognize these strong bonds and care about their employees’ emotional well-being.
- Lifestyle Spending Accounts – You may have heard of these under a different name, such as Wellness Accounts or Fitness Accounts, depending on the parameters that the employers set. Employers establish these accounts to deliver flexible lifestyle benefits employees will use and enjoy. The employer contributes to the accounts and establishes how they can be used, such as reimbursing employees for approved purchases. Fitness and Wellness Accounts aren’t the only types of lifestyle spending accounts that employers are offering, but they are two that are gaining in popularity.
- Dependent Care Benefits – Employers recognize that child and dependent care is a critical issue and a large expense for many American families. Millions of people rely on childcare to be able to work, while others are responsible for older parents or disabled family members. Employers can help by setting up Flexible Spending Accounts for dependent care. These accounts allow individuals to pay for qualified child and dependent-care expenses while lowering their taxable income.
Employers of all sizes are recognizing the danger in assuming they know which benefits are most important to their employees. The best chance they have of getting it right is to simply ask the employees! I am working with a lot of clients who are surveying their employees on their benefit preferences. While you’re at it throw in a couple of questions about some of the retirement plan design features you are considering adding or changing. The results will almost certainly provide a good foundation for benefits decisions.
The competition for top talent is perhaps greater than at any point in recent history. Employers know they are in a battle and must find ways outside of direct compensation to make their organization more attractive. A superior benefits package can often tip the scales when potential employees are weighing multiple employment options. In this environment, plan sponsors must consider how their defined contribution plan can help improve outcomes for their organization and its employees. We hope these considerations can help all parties navigate The Great Resignation.
- Principal Retirement Security Survey (Q3 2021)
- Plan Sponsor Council of America’s 64th Annual Survey of Profit Sharing and 401(k) Plans.