Overcoming the Great Resignation
Using Your Company’s 401(K) to Help Attract and Retain Employees
The last two years have brought many changes to our way of life, perhaps none more noticeable than the way we work.
Businesses across most industries adjusted to different ways of operating to ensure the safety of both staff and customers during the COVID-19 pandemic. Remote work, hybrid schedules, strict new protocols and in some cases, completely new business models, took hold. The pandemic ultimately caused a massive workforce shift as employees reevaluated their jobs and altered their careers for reasons ranging from intense new demands (frontline workers, for example) to a need for greater flexibility or a simple belief that they can do better.
The U.S. Bureau of Labor Statistics reported that an average of about 3.9 million Americans left their jobs each month through November of last year, a phenomenon that has been nicknamed the big quit, the great reshuffle, and more commonly, the great resignation.
It’s not all grim, though. Today’s pool of job seekers is large, diverse, and looking for companies with flexibility, shared values and more to offer than a paycheck and nondescript 401(k). That latter piece is something we have a wealth of experience in, as we provide comprehensive retirement planning services for hundreds of companies across the upper Midwest.
As the great resignation has unfolded, we’ve worked with clients to reevaluate their 401(k) plans, to optimize their offerings to attract and retain talent. Here’s a look at some considerations based on the successes we’ve seen.
Adjust Your Vesting Periods
401(k) plans often have provisions to incentivize employees to stay long-term. Vesting schedules, which determine how long an employee has to work for a company before becoming eligible for a percentage of their employer’s 401(k) contribution, have gradually become shorter over time. The pandemic has sped up that trend.
Many employers are moving to a Safe Harbor Plan Design and removing vesting requirements altogether. All Safe Harbor contributions are 100% vested when contributed. There are other added benefits to a Safe Harbor plan, so this is an attractive option.
The six-year graded vesting schedule, in which an employee’s ownership in the company contribution would increase by a certain percentage each year, used to be the norm. We’re seeing that shrink to five years or less.
Some employers have started “cliff vesting,” in which employees receive no vesting the first year, but are fully vested the next year or the year after that. The idea, of course, is that employees have the opportunity to start earning retirement benefits more quickly, which can give a business an edge over one with a more traditional vesting period.
With so many plans offering shorter and therefore more attractive vesting periods, your current vesting schedule is not likely to be the “golden handcuffs” that it used to be in terms of retaining employees.
Factor a 401(K) into Overall Compensation
Rather than looking at a 401(k) as a benefit separate from employee compensation, it’s helpful for both employers and employees to consider it as part of a total compensation package.
A lot of today’s employees, especially younger generations, would rather see a higher salary than an equal or even greater benefit in a 401(k) plan. We have seen some companies offer a bonus, then let employees decide whether to put that bonus into a 401(k) instead of giving it as a profit sharing contribution.
While this can be an attractive option for employees, we still believe that a profit sharing contribution is a greater benefit in the long run. Focus on educating plan participants as to how a profit sharing contribution is a valuable component of their compensation.
Some of our clients have also found value in providing employees total compensation statements, so they can get a visual of the total value of their rewards package.
Increase Your Contributions
Company contributions (matching and/or profit sharing) are a significant incentive for employees to join and stay with a company. There’s an incentive for employers as well, as both matching and profit sharing contributions are tax-deductible. For tax year 2022, the total employee plus employer contribution limit is $61,000, or $67,500 when you include catch-up contributions for workers 50 or older.
This is perhaps the most important thing you can do to retain employees. Your company’s 401(k) is not a set-it-and-forget-it program. Employees need to be reminded of it, encouraged to participate and educated about how to do it and why it’s beneficial to them.
We provide both in-person and virtual training sessions covering 401(k) programs and related topics, such as personal finance, budgeting and estate planning. We make education fun and relatable and encourage employees to take action, whether that’s increasing their contribution percentage or making an investment change. We always see a bump in employee engagement with their plans after an education session.
Lean On an Expert
Like everything else that’s happened in the past two years, we don’t know how permanent some of these trends are going to be. When times are difficult, it’s important not to make hasty, emotion-driven decisions. The long-term implications of any changes to your company’s 401(k) plan need to be carefully considered, as some changes are difficult to reverse.
As a fiduciary, we will always work in your best interest. In fact, the 401(k) investment options we offer to our business clients are the same investments offered to our team at Trust Point (Emerj360 is a division of Trust Point). If you’re thinking about making changes to your plan, send Trust Point a message or give us a call at 866-945-1561. We’d be happy to help guide you to the best decision for your success now and in the future.
Beyond a 401(k) Plan: A Culture of Caring
There are many things beyond a 401(k) plan that employers can do to attract and keep good employees in today’s changed world. Based on what we have experienced internally and seen from our business clients, here are a few tips.
1. Listen and Respond
It’s important to recognize that no employer will be able to please every employee or prospect, nor should they have to. But it is important to listen, to get a good understanding of what employees are looking for and to consider how your business might be able to adapt. Make sure your employees feel not only heard, but understood.
2. Find Flexible Solutions
Consider what you can adjust to meet the changing needs of staff without sacrificing business productivity. Trust Point is a relationship business, both internally and externally. Communication is crucial and, like so many other businesses, we found new ways that met the needs of our team and clients alike. An example is bi-weekly all-company meetings via Zoom. That’s also an example of our emphasis on maintaining organizational transparency.
3. Focus on Wellness
It’s not always easy to keep tabs on your staff’s well-being, but the last two years have been difficult for many. We’ve paid closer attention to mental health in the last year, bringing in speakers to increase awareness and address stigmas. We also find fun ways to keep our team engaged, such as our pay-it-forward campaign. Each month, a Trust Point team member is given $200 to use toward a random act of kindness or charitable donation of their choice. Little perks can go a long way toward employee satisfaction.