It has been heartening in recent weeks to see a number of employers announce plans to expand and increase benefit programs, offer bonuses, and increase the employer match. Better still, a recent survey indicates that more positive changes could lie ahead.
A decade ago, the
headlines were filled with stories about a number of large firms
announcing that they were cutting, and in some cases eliminating
altogether, the employer match. While the vast majority of employers
didn’t reduce those matches, it was nonetheless a stark reminder that
those defined contributions are “defined” annually, not in perpetuity.
The Match Matters
There are a number of things that we know about the importance of the
employer match; there’s the obvious (though sometimes glossed over)
impact that an employer contribution means in terms of retirement
security in simple dollars, for one thing. Indeed, the nonpartisan
Employee Benefit Research Institute (EBRI) has estimated that if future
employer contributions were eliminated for Gen Xers, their retirement
readiness rating would decline from 57.7% to 54.6% – and that doesn’t
consider what might happen to employee contributions as a result.
And then there’s the reality that those who it save in a retirement plan at work appear to save at/near the level matched
(though the amount of the match matters less than the existence of the
match), suggesting that it provides a savings target of sorts for
There’s little question that the match does good things for workers
and their retirement security – but, let’s be honest, the employer match
that is “free” for workplace savers is anything but for the employers
that provide it. Here’s why it’s worth the money.
Better Finances Mean Better Work
A 2017 Mercer study
found that on average, people spend about 13 hours per month worrying
about money matters at work – about 5 hours at the median, suggesting
that some spend a lot more time than others thinking about such things.
EBRI’s Retirement Confidence Survey suggests
that retirement confidence — and the retirement savings that ostensibly
underpin that confidence – are at least somewhat connected. There’s a
growing body of research that suggests that financial concerns take a
toll on productivity. That’s not just retirement, of course – but it’s a
big part of it.
Little wonder that more than 8 out of 10 (82%) finance executives surveyed by
CFO Research with Prudential Financial, Inc., believe that their
companies benefit from having workforces that are financially secure –
and nearly as many believe that employers should assist employees in
achieving financial wellness during their working years.
Better Benefits Attract Better Workers
Okay, every time somebody talks about the reasons to offer a
retirement plan, “attract and retain qualified workers” is on, if not at
the top of, that list. Thinking about that next generation of workers?
Well, the 2018 Millennial Benefit Trends Report
from Pentegra found that, asked if they take into account whether a job
offers benefits when considering applying – well, pretty much everyone
(96.77%) said yes. And, asked to rate five general benefits categories
in order of importance, “401(k) Retirement Savings” easily outpaced the
others, with about 4 in 10 rating it “extremely important.”
The CFO Research survey noted above also found that nearly two-thirds
(63%) say that employee satisfaction with benefits is important for
their company’s success, and 65% believe that employee benefits are
critical to attracting and retaining employees.
Better Benefits Keep Workers
By far, the finance executives surveyed
consider higher employee satisfaction (59%) and increased retention
(53%) as the most important benefits of a focus on financial wellness.
State Street Global Advisors’ 2016 research suggests
that there is a noteworthy interplay between people’s happiness with
their working life and their financial well-being. In fact, reports
indicate that financial wellness actually influences an employee’s
happiness at work.
Poor Savings Postpones Retirements
by Prudential (aptly titled “Why Employers Should Care About the Cost
Retirements”) found that a one-year increase in average
retirement age results in an incremental cost (the difference between
the retiring employee and a newly hired employee) of over $50,000 for an
individual whose retirement is delayed.
Moreover, the report notes that it results in an incremental annual
workforce cost of about 1.0%-1.5% for an entire workforce. This
represents the incremental annual cost of a one-year delay in retirement
averaged over a five-year period. Prudential notes that for an employer
with 3,000 employees and workforce costs of $200 million, a one-year
delay in retirement age may cost the employer about $2-3 million.
It’s been great to see so many employers announce enhancements to
their benefits programs, cash bonuses and – most particularly –
increases to their 401(k) matches. However, every year tens of thousands
of employers commit to helping their workers save for retirement by
committing to making a company match – and they have done so in good
times and times that weren’t so good.
It’s a commitment that makes a huge difference – and one that shouldn’t be taken for granted.
- Nevin E. Adams, JD