ARTICLE
Using Your Retirement Plan to Attract Top Talent
Talent acquisition and retention continue to weigh heavily on business owners. With many businesses struggling with staffing issues, savvy executives are realizing that boosting their retirement plan benefits can be a valuable part of the solution.
How to Maximize your Retirement Plan Offering to Gain an Edge in Recruiting & Retaining Talent
A survey by WTW showed that 35% of employers have taken proactive steps to stand out from their competitors and ensure their employees remain happy and satisfied.1
Below are retirement plan strategies that can help give you an edge in retaining and recruiting employees.
Use a benchmark.
It is important to understand how your 401(k) plan compares to the competition. Benchmarking your plan against similar-sized businesses within the same field is the first step in creating a competitive 401(k) plan. This allows you to adjust if needed.
Companies can standout with their 401(k) plan by:
- Offering a more generous matching formula.
- Offering immediate eligibility.
- Using a shorter vesting schedule.
Offer profit sharing.
Offering a profit-sharing plan is a good way to reward employees. In good years, employees get to share in the company’s profits. In lean years, companies can limit contributions. Also, profit-sharing plans can utilize an age-weighted formula. This allows owners and others to receive a greater portion of profit-sharing portions.
Consider a non-qualified plan to attract high-level leaders.
A non-qualified tax deferred compensation (NQDC) plan can be a recruitment and retention tool for executives and some senior managers. An NQDC plan is an employer-sponsored, tax-deferred retirement savings plan that is outside the Employment Retirement Income Security Act. These are exempt from the regulations that apply to qualified plans. Also, offering an NQDC plan broadens your company's compensation package and can be included as part of the contract negotiation.
Provide access to knowledge.
Personal finances are taking up time at work and impacting their employers’ bottom line. According to a report from John Hancock, 8 in 10 workers worry about their finances at work.2 When left unaddressed, financial stress can lead to increased absenteeism, loss in productivity and higher health care costs.
How can you, as an employer, help your employees with this? Providing a financial wellness program can provide another tool in your retention toolbox. A recent PwC survey found that 36% of employees who are stressed about money are looking for a new job compared to only 18% of non-financially stressed employees.3 Examples of financial wellness programs include literacy education, debt counseling and financial coaching. These benefits can reduce employee stress levels considerably.
Offer a 401(k) match for student loan repayments.
Roughly 80% of people with student loans have needed to delay important life goals, such as buying a home or retirement, according to a CNBC/Acorns study.4 But as of 2023, thanks to the Secure Act 2.0, employers can make matching contributions to their employees’ 401(k)s while employees are making student loan payments. For student loan borrowers struggling to pay back their loans and save for retirement, the new law could provide a lifeline for those choosing between saving for retirement and paying their loans.
Other rewards.
Some plan sponsors are adding emergency savings accounts (ESAs) and/or health savings accounts (HSAs). According to a survey by LendingTree, about 49% of workers have less than $1,000 in savings to deal with emergencies.5 An ESA can be funded by automatic deposits through payroll deductions. The money in an ESA is taxed as income and is available to employees who have burning financial needs.
HSAs allow employees to put money on a pre-tax basis to pay for qualified medical expenses. There is no use-it-or-lose-it requirement like ESAs, and any funds that remain in the account continue to grow and accrue interest. HSAs are a tax-efficient way to save for healthcare costs. Companies need robust retirement plans to stay competitive in a tight labor market.
1 2022 The Next Evolution of DC Plans Survey. WTW.
2 Stress, finances, and well-being: driving behaviors that matter. John Hancock
3 2023 Employee Financial Wellness Survey. PwC.
4 “Invest in You.” January 2022. CNBC SurveyMonkey Poll.
5 49% of American’s Can’t Afford $1,000 Emergency, with Many Relying on Credit Cards for Unexpected Expenses. December 2023. LendingTree.