Loyalty and Retirement Benefits: Leverage Savings Opportunities to Boost Talent Acquisition and Retention Efforts
Many HR leaders focus on compensation and health care to recruit and retain the best workers. While this tactic is generally sound, it overlooks the powerful connection between loyalty and retirement benefits. In fact, almost "80 percent of employees view benefits like a retirement plan as a key consideration in accepting a new position," according to ADP Retirement Saving Trends, which quoted a 2012 Bank of America Merrill Lynch Workplace Benefit Report.
Employees and prospective employees likely value retirement benefits because they, like many Americans, feel chronically under-prepared for retirement. "Nearly 40 million working-age households (45 percent) do not own any retirement account assets," and "the median retirement account balance is $2,500," according to research from the National Institute on Retirement Security (NIRS).
Because retirement savings are so sparse — and so important to the average worker — employers who are willing to provide much-needed retirement savings assistance could hold a distinct advantage in the fight to recruit and retain top talent.
Employees' Retirement Needs
Economic conditions will always play a variable role, but most Americans still plan to retire sometime in their sixties. Although there is the Social Security system, the amount available through Social Security is rarely enough for workers to maintain their current lifestyle. That means they must prepare for retirement through their own savings.
In order to maintain their current standard of living, most American households must save enough to replace their annual income by 85 percent throughout their retirement years, according to the NIRS study. But a study by the National Academy of Social Insurance reports that no matter your income level your Social Security benefits will not be enough to get to that threshold.
While many American families will count on Social Security to get them part of the way, they must depend on pensions or defined benefit plans to fill in the gap.
Unfortunately, only 50 percent of employers provide such plans today, according to the ADP white paper. Therefore, most households will need to turn to other investments to recoup that income during retirement. According to CNN Money, most retirement experts recommend that workers contribute about 10 to 15 percent of their pay over a career starting in their 20s in order to save enough for a comfortable retirement.
Saving 15 percent of their pay — in addition to ever-increasing living expenses, health care costs, house payments and college education for children — is challenging for many workers. Employer-sponsored plans such as 401(k) plans are often the most effective option, as they provide tax benefits for employees, and employers can arrange to have employee contributions automatically deducted from their paychecks, making saving automatic.
Meet Needs, Win Loyalty
Although only half of employers offer a retirement plan as part of their employee benefit package, "52 percent of employees see retirement benefits as driving company loyalty," according to a 2012 MetLife report. However, only 35 percent of the organizations surveyed regard retirement benefits as an important factor when it comes to employee loyalty. This disparity between employee and employer perception should serve to embolden organizations to seize the opportunity to outpace their competitors by giving people what they want.
For example, according to the ADP Retirement Saving Trends, smaller companies are much less likely to offer retirement benefits: just one-third of companies with 20 employees or fewer do so, compared with 98 percent of organizations that employ 5,000 or more. So because smaller employers often find themselves competing for top-notch employees with larger enterprises, they can level the playing field by offering a 401(k) or other employer-sponsored retirement plan.
But this logic holds true for larger employers, as well. If your organization can offer retirement benefits that your competition either doesn't have or can't match, you will differentiate yourself from the pack. This will not only get top talent in the door, but should be a major factor in keeping them in your organization for years to come. HR leaders can further build employee loyalty by providing financial services, such as access to a financial adviser and ongoing financial planning assistance, according to Bank of America.
There will always be a number of different strategies to keep the best and brightest. But if savvy HR leaders follow the numbers, they'll find they point to a future where employee loyalty and retirement benefits go hand in hand.
For more information on retirement savings trends, download the report: Retirement Savings Trends: How Employers Can Extend Coverage and Simplify the Retirement Readiness Process.
