When you live in an economy with historically low unemployment rates, the competition for top talent can be fierce. From student loan repayment programs to onsite day care to enhanced retirement benefits, employers are becoming more creative when offering incentive plans that persuade quality employees to choose them. It’s an employee’s market. Therefore, employers need to know what employees’ value and retirement plan advisors can help by knowing the important trends and keeping their retirement plan client’s informed.
Here are three ways retirement plan advisors can discuss competitive total rewards practices that recruit, reward, and keep great employees.
Offering an employer match
The average employer match is 4.7% of salary, which is a record high, according to Fidelity. As an advisor, this could be an opportunity to discuss your clients’ current match formula and compare it to the national average and/or industry specific averages. When smart employees are comparing benefits, the retirement plan match can add up to meaningful dollars towards achieving retirement success.
From a prospecting approach, search the Form 5500 database and look for plans that do not offer a company match. Then contact the plan sponsor to discuss how offering a match could help to recruit great employees.
For prospects and clients, if employers are hesitant because of increased costs, guide them through a plan design benchmarking analysis to learn the possible scenarios and cost impacts.
This exercise could be valuable as a way to evaluate the employer’s current plan offering, and at the same time, discuss the effectiveness of their overall plan.
Applying a vesting schedule
In an employee-driven economy where there is a sense that everyone needs to cater to employee wants, often times vesting schedules are overlooked. Remind your employers that they can still have control.
To help employers feel more comfortable about increasing the match or providing enhanced benefits, share with them that they can use a vesting schedule to reward tenured employees. Whether the vesting schedule is a defined percentage every year or a 3-year cliff, the employer has options.
Common vesting schedules
- Option A: Year 1 = 20%, Year 2 = 40%, Year 3 = 60%, Year 4 = 80%, and Year 5 = 100% Vested
- Option B: Year 1 = 0%, Year 2 = 0%, Year 3 = 100%,
- Option C: Talk with a TPA for more vesting schedule options
One last comment about vesting schedules, if an employee leaves before they are fully vested, the non-vested employer dollars go back into the plan’s forfeiture account. From the forfeiture account, the employer can usually use that money to pay plan administrative expenses, off-set company contributions, or allocate as additional company contributions.
In other words, your plan sponsors are not losing the contribution, rather, they are rewarding loyal employees by reallocating those contributions or putting them towards future plan expenses.
Set up a communication and implementation plan with the retirement plan committee to establish plan goals. Not only will this help the employees find the track to retirement, it will also help with the company’s bottom line results. It has been proven that “financially well” employees have lower health insurance premiums, lower absenteeism/presentism, and have higher productivity.
Advisors have the ability to keep their clients informed by discussing these three ideas to better help them recruit and retain employees. Then by tailoring a retirement plan that aligns with employee wants and the employers’ budget, this creates a winning total rewards program.
Use these ideas when sitting down with employer prospects and clients. With this bull market, many employers are facing different challenges. By thinking about alternatives, you are presenting solutions that they might not even be aware of. Take this knowledge to your prospects who don’t offer a match, only used a Safe Harbor, have a straight profit sharing formula, and then partner with a TPA to educate them on additional options.
As employers struggle to find quality employees, teach them how offering retirement plan benefits can help them to recruit, reward, and keep the best employees.
FBi Tools that Can Help
Value and Fee Benchmarking Report, a peer-to-peer evaluation report that shows a comparison of the existing plan to other similar plans and can provide guidance on how changing certain plan features could help the employer offer a more competitive retirement plan benefit.
Our report follows a 5-step process that is fair and repeatable.
Customize the Benchmark Group. We use numerous factors to build a benchmark group from our proprietary database that is customized for each peer group using mathematical models designed to optimize the degree of accuracy.
Review Service Provider Quality. The DOL has noted in prior rulings that it is allowable to consider the Quality of the Service Provider when determining Fee Reasonableness. We provide a logical framework to analyze this issue.
Assess Scope of Services. We examine the scope of services being provided so plan sponsors can understand how the services they are receiving are impacting the cost structures of the service providers.
Examine Value Delivered. We examine the Value Delivered in terms of helping plan sponsors do their job as a Responsible Plan Fiduciary and to participants in terms of helping them save for retirement.
Evaluate Fees. Finally, we track and compare fees to the Benchmark Group and to FEEPOINT®. FEEPOINT is a proprietary fee calculation designed to account for fiduciary status, extra services and extra meetings that are not found in the typical plan.
Download a sample Value and Fee Benchmarking report by visiting https://www.fiduciarybenchmarks.com/resource-center/
Craig Rosenthal Senior Vice President, Advisor Sales & Service
Craig is responsible for sales, service, product development and partnerships with the Advisor/Consultant, Broker/Dealer, and DCIO channels.