Employee Pensions and Today's Workplace Retirement Planning

Employee Pensions and Today's Workplace Retirement Planning

This article was updated on July 10, 2018.

Not long ago, employee pensions were a common workplace benefit. Today, pensions are much less commonplace, but still around in some industries. Finance leaders need to understand the current landscape for workplace retirement plans so they can offer competitive benefits while helping employees reach their financial goals.

The State of Employee Pensions

The number of Fortune 500 businesses offering pensions has fallen 86 percent, according to U.S. News & World Report. Many of these existing pension plans only cover older employees who joined the organization years ago. The organizations are winding down their plans and not letting new employees join. Pensions are still fairly common in the insurance and aerospace industries, firms with unions and the public sector; however, most of the private sector has moved to 401(k) plans.

An Employee Perspective

At this point, employees are fairly used to not having pensions, especially in the private sector. The country as a whole has moved in that direction. Of course, if you do offer a pension, it could help your organization stand out because you're giving your workforce an extremely valuable benefit. However, since this is a fairly sizable investment, it's not an option for every enterprise. Not offering a pension shouldn't hurt your standing compared to competitors, unless you're in one of the few industries where they're still popular.

Educating Your Employees

Your employees need your help if they're going to reach their retirement goals, especially if you're using a 401(k). For these plans to work effectively, employees need to understand how to properly manage and invest their savings. Work with your HR department to make education on retirement benefits a key responsibility. Have them hold presentations throughout the year explaining how to effectively use their 401(k).

These presentations should go well beyond administrative details like enrollment into the plan. Consider covering investment topics like how to pick the right investments in your plan, figuring out how much to save each year, tax rules for 401(k)s and managing investment risk. The firm managing your 401(k) should be able to provide easy-to-understand information packets for your employees and may be able to join or run the meetings for your HR department. These presentations are an investment of time — employees who feel confident about their financial situation can concentrate on their work and may feel more loyal to the organization as a result.

If you offer employees pensions instead, it's still beneficial to give employees financial education. Their pension payout may not be large enough to cover all their retirement expenses, so they may wish to consider doing more saving on their own outside of work.

Although retirement planning options have generally evolved away from the pension to 401(k) plans, offering competitive retirement benefits may be an incredibly important component of your employee recruitment and retention efforts.