THE SECRET INGREDIENT TO EMPLOYEE RETENTION IS 401(K) WHITE PAPER Pensions are now a thing of the past for the vast majority of U.S. companies. An employer-sponsored 401(k) is now the vehicle by which responsible employers help to fund their employees retirement future.
BENEFITS TO YOUR BUSINESS Over the past two decades, the employment landscape has shifted away from companies offering defined benefit (DB) plans, also known as pension plans, to offering defined contribution (DC) plans, which include 401(k) plans. 89% EMPLOYEES View a 401(k) or similar plan as an important benefit 84% EMPLOYERS Without reform, the consensus from the Social Security Administration is that the Social Security Trust Fund will be depleted by 2034, which will translate to an estimated 25 percent reduction in Social Security benefits across the board. With the maximum possible social security benefit for 2016 at $2,639 per month and the average benefit at just $1,341 per month, the need for additional income during retirement is evident, particularly for young workers who are likely to be facing reduced, or even nonexistent, social security income decades from now. EMPLOYEE ATTRACTION AND RETENTION According to Transamerica, the vast majority of workers (89 percent) view a 401(k) or a similar plan as an important benefit. A similar percentage (84 percent) of employers believe that their employees see such a benefit as important. Slightly more workers (60 percent) than employers (53 percent) see these benefits as being very important. A 2014 Towers Watson survey found that 25 percent of workers stated that their company s retirement plan was an important reason they decided to work for their current employer, 39 percent stated that the plan is an important reason they stay with their current employer, and 55 percent stated that they would like to continue working with their current employer until they retire. BENEFITS TO THE EMPLOYER Apart from the intangible benefit of creating a happier and more stable workforce, there are some practical benefits for business owners who offer 401(k) plans. By leveraging a Safe Harbor plan design, in tandem with a profit sharing arrangement, business owners can put away up to $52,000 per year in pre-tax 401(k) contributions.
HIGH-QUALITY CUSTOMER SUPPORT AND CARE 75% of employees are in favor of automatic enrollment 96% of employees are satisfied with their automatically escalating plan 401(k) matching contributions are tax deductible for employers. Offering a 401(k) to employees can be very cost-effective for employers, especially when adopting into a multiple employer plan (MEP). This option can save thousands in annual audit costs, alleviate the business from fiduciary liability, and offer more competitive fees than a standalone single employer plan (SEP). HIGH-QUALITY CUSTOMER SUPPORT AND CARE Employer Contributions Simply offering a 401(k) plan to employees is a solid foundation, but the real benefit employees are seeking from an employer sponsored retirement plan is a matching contribution. While a match incurs a cost to the company, 401(k) matching can be properly planned for in the overall employee compensation strategy of the business over the long term. Employers have full control over the match they offer. Typical employer matches are between 1.5 percent 6 percent of an employee s salary. Automatic Enrollment A recent J.P. Morgan Chase study found that 75 percent of employees are in favor of automatic enrollment into their company s 401(k) plan, and that among those automatically enrolled, less than 1 percent opted out, with 96 percent reporting being satisfied with their plan. Automatic Escalation The same Chase study found that 74 percent of employees are in favor of automatic contribution escalation, 96 percent report being satisfied with their automatically escalating plan, and 15 percent state that they would have not increased their deferrals without automatic escalation being in place. Eligibility Timing As a general rule, the sooner you can make employees eligible to participate in the plan, the better. Most employers setting up a new plan will waive the eligibility
Multiple Employer Plan (MEP) Benefits Save thousands in annual audit costs. Alleviate the business from fiduciary liability. Offer more competitive fees than a standalone single employer plan (SEP) Lower overall costs afforded by the economies of scale. Outsourced plan administration. requirements for current employees, and you can encourage plan participation and better leverage the benefit of the 401(k) as an attraction and retention tool when the time to eligibility is shorter rather than longer. Vesting The vesting schedule for your plan dictates the terms on which the matching contributions your business makes become owned by the employee. Vesting can happen immediately, on an incremental schedule (i.e. 20 percent per year over five years), or through a cliff where 100 percent of the employer match becomes vested all at once after a set period of time. Determining the vesting arrangement that is right for your company is a balance of encouraging employees to stay with the company long enough to become fully vested, without frustrating employees by forcing them to wait too long to receive the full benefit of the matching contributions. MORE ABOUT THE 401(K) FIDUCIARY ROLE Any employee who is responsible for selecting a 401(k) provider, making selections on the investment lineup, reviewing or approving plan fees, or who has any other general oversight or decision-making responsibilities for the plan is legally classified as a fiduciary. This means that any internal staff involved in the plan s administration are already fiduciaries, including the business owner(s), as well as any management staff or committee members that oversee employee benefits. A breach of fiduciary duty, whether intentional or unintentional, is a significant risk that is critical for your business to mitigate. One of the best ways to do so is to adopt into a multiple employer plan (MEP). In the MEP arrangement, the fiduciary role is fully transferred off of your business and on to the MEP plan sponsor. In addition to the relief of fiduciary liability, MEPs offer
THE SOONER EMPLOYEES START INVESTING, THE BETTER SAVINGS BY RETIREMENT AT 67: $1,300,000 25-YEAR- OLD SAVINGS BY RETIREMENT AT 67: $410,000 45-YEAR- OLD 6% Contribution + 50% Employer Matching other potential benefits over SEPs, including lower overall costs afforded by the economies of scale, as well as outsourced plan administration, among other advantages. While defined contribution plans don t necessarily offer the same financial security, and therefore the same attractiveness, as defined benefit plans once did, a welldesigned 401(k) plan can pay off big time for employees who get started investing early and keep contributing to the plan for the long haul. Consider the following hypothetical scenarios: For a 25-year-old employee with a current annual salary of $40,000, if he or she contributes six percent of their annual salary into the 401(k), and your company matches their contribution at a rate of 50 percent, that employee will have amassed a savings of nearly $1.3 million by the time they retire at age 67 (assuming a three percent annual pay increase and a seven percent return in the market). For a 45-year-old employee with a current annual salary of $70,000, if he or she contributes six percent of their annual salary into the 401(k), and your company matches their contribution at a rate of 50 percent, that employee will have amassed a savings of just over $410,000 by the time they retire at age 67 (assuming a three percent annual pay increase and seven percent return in the market). While both fictional employees would be in far better shape than the average family entering retirement in 2016 with a savings of $95,776 (with the nationwide median for families with savings at $60,000 and the median for all families, including those with no savings, being just $5,000), clearly the employee who starts younger ends up in a far better financial position than the older, even with a $25,000 lower annual salary. This is due to the long-term effect of compounding interest over a substantial period of time. Bottom line?
OFFERING A 401(K) IS A NECESSITY IN TODAY S COMPETITIVE BUSINESS LANDSCAPE Today, more so than in times past, workers want to feel that they are valued, and that the leaders of their company truly have their best interest at heart. The earlier you can get your employees investing in a 401(k) plan, the better. Pensions are all but extinct, and the future of social security is highly uncertain. A 401(k) plan is the method today s companies use to secure the retirement future of the employees under their care. Responsible employers can leverage the power of the 401(k) to provide a clear path to financial freedom and independence for employees, regardless of any governmentfunded program. A 401(k) plan is a key component of a robust and competitive employee benefits package. The vast majority of employees in the modern workforce want access to a 401(k) plan, and most consider the overall benefits package available to them as a key component when deciding on the company they want to become a part of and stay with for the long haul. Companies who have a 401(k) and who encourage employee participation through a good plan design, employee education, and offering an employer match often have a competitive advantage over those who do not when it comes to attracting and retaining the best and brightest. A well-designed 401(k) plan can provide substantial benefit to employees, especially those who start early and stay with your company for the long haul. Today, more so than in times past, workers want to feel that they are valued, and that the leaders of their company truly have their best interest at heart. Providing a plan, educating employees on its value, and providing matching contributions are all important steps for employers to take to show they care about employees long term future. The relatively insignificant expense to the company of providing a 401(k) plan brings substantial return on investment by way of the long-term financial security and stability afforded to your employees.
PRESENTED BY Aureon is a business solutions provider who connects possibilities to productivity by providing unique and scalable business support services for organizations small and large. Headquartered in the heart of the Midwest, and serving clients nationally, Aureon offers a comprehensive suite of support solutions, with a focus on Technology, HR, and Contact Center services. Aureon s unique combination of talent, technology, and tools enable clients to focus on their core business. For more information, visit www.aureon.com. Slavic401K is a 401(k) retirement plan provider that provides stewardship of retirement earnings with honesty, transparency, integrity, and fairness. Slavic has earned the trust of more than 4,000 businesses nationwide and specializes in supporting multiple employer plans. The strong commitment to integrity and focus on investor care enables clients to feel confident in their retirement. For more information, visit www.slavic401k.com. 1 DiCenzo, Jodi, and Paul Fronstein. Lessons from the Evolution of 401(k) Retirement Plans for Increased Consumerism in Health Care. Employee Benefit Research Institute 320th ser. (2008): n. pag. Web. 2 United States of America. Social Security Administration. Office of Retirement and Disability Policy. Office of Retirement and Disability Policy. By Stephen C. Goss. N.p., 2010. Web. 3 United States of America. Social Security Administration. 2016 Social Security Changes. N.p.: n.p., 2016. Print. 4 Transamerica Institute. The Current State of 401(k)s: The Employer s Perspective. Transamerica Center for Retirement Studies (2016): n. pag. Web. 5 Gardner, Jonathan, and Steve Nyce. Attracting and Keeping Employees: The Strategic Value of Employee Benefits. Willis Towers Watson (2014): n. pag. Web. 6 Slavic401K. Benefits of a Multiple Employer Plan. Web log post. Slavic401K. N.p., n.d. Web. 7 United States of America. Department of Labor. Employee Benefits Security Administration. Meeting Your Fiduciary Responsibilities. By US Department of Labor. N.p., n.d. Web. 8 J.P. Morgan Asset Management. Guiding Participants from Intent to Action: 2016 Defined Contribution Plan Participant Survey Findings. J.P. Morgan Asset Management (2016): n. pag. Web. 9 Ibid 10 Nyce, Steve. Attraction and Retention: What Employees Value Most. Willis Towers Watson (2012): n. pag. Mar. 2012. Web. 11 Elkins, Kathleen. Here s How Much the Average US Family Has Saved for Retirement. Business Insider. Yahoo! Finance, 4 Mar. 2016. Web. HAVE QUESTIONS ABOUT THE ACA? Ask our HR experts