Retirement Plans = Employee Glue

Want to keep your employees? Offering a retirement plan could be an answer, says recent analysis. 

October Three argues that employer-provided retirement plans are a potent tool to retain employees and counters what it calls “the number one problem facing American companies right now.” 

Setting the Table

The year 2021 brought voluntary resignations into sharp relief, suggests October Three. They note that in that year:

• More than 47 million employees left their employers voluntarily, the highest number of people doing so since the Bureau of Labor Statistics started measuring resignations in 2001. 
• The voluntary resignation rate stood at 11.6% in 2020, and rose by 4.3 percentage points to 15.9% a year later.
• The sector in which the voluntary resignation rate was the highest was hospitals and healthcare systems, at 19.8%.
• Millennials and members of Gen Z were moving from job to job faster than ever.

Big Price Tag

Employees leaving is more than an inconvenience for an employer, says October Three. They cite statistics from the Work Institute saying in 2021, turnover cost U.S. employers more than $700 billion. Further, they say, while the cost of a single resignation can vary widely, on average it costs up to 33% of that employee’s base salary. 

Retirement Plans an Antidote 

Employee benefits—especially retirement benefits—are a way to keep employees that employers “frequently underestimate,” says October Three. Doing so, they suggest, is behind many departures; they cite research by the Pew Institute that says that in 2021, more than 40% of resignations were at least in part due to insufficient benefits. 

Hope!

The Transamerica Center for Retirement Studies in a 2021 study said that employer-sponsored retirement plans, are “essential for employers to attract and retain talent.” They found that employers recognize that compensation and benefits to are important factors in attracting and retaining employees. To the tune of 74% of them. 

October Three also offers some hope: they found that the importance of saving for retirement is not lost on younger employees. They say that employees who are part of Gen Z— defined as those born between 1997 and 2012—“are thinking ahead more than past generations” and note that Transamerica found that 30% of such employees consider saving for retirement to be a priority and two-thirds of them who have access to a retirement plan avail themselves of it. 

And Transamerica strikes a similar tone. They found that just over half the Gen Z members they surveyed have trouble making ends meet, but nonetheless “they have not given up on retirement.” So interested are they, in fact, that the median age at which they started saving for retirement was a tender—they call it “unprecedented”—19! Not only that, they report that the median contribution of their annual pay is 20%. TransAmerica estimated that in 2022, the median retirement savings that employees who hail from Gen Z amounts to $33,000.

A Nod to…DB Plans

Many employers enhance their defined contribution plans to stem the flow of employees out of their doors, says October Three; however, they suggest such an approach has its limitations. To wit: they note that a 2021 National Conference on Public Employee Retirement Systems report says that DC plans provide approximately 24% of the benefits that a defined benefit plan does. 

Not surprisingly, October Three reports that an increasing number of private-sector employers are considering reviving the DB plan in their effort to “stand out from the crowd as an employer of choice.” 

The Center for Retirement Research at Boston College, October Three says, bears out the merits of such an approach: the center found that employees who participate in a DB plan are more likely to remain for at least 10 years with the employer providing it. 

And an increasing number of employers are using cash balance plans to retain employees and control costs, October Three says; in fact, they say, just over half of all DB plans are cash balance plans, and 13,000 new ones have been established in the last five years. 

Whatever their ilk, October Three argues, pension plans “are a proven way” to encourage employees to stay.  

The Bottom Line

“Considering how few Americans are saving enough money for retirement, offering substantial retirement benefits is a logical way to recruit and retain employees,” says the report.