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Structuring Benefit Plans to Recruit and Retain Top Employees

Posted by Marc S. Schechter | Jul 29, 2019 | 0 Comments

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Employers are getting more creative in structuring benefit packages to recruit new employees and retain top workers in an increasingly competitive environment. While salary is a primary consideration, many prospective employees understand the long-term value in benefit packages, especially retirement plans. A desirable retirement plan features for many workers includes short vesting or immediate vesting in 401(k)s. 

Vesting Schedules for 401(k)s and Changing Trends

According to the 2015 Bureau of Labor Statistics' National Compensation Survey, only half of the employers who offer a 401(k) match any amount of the employee contributions. Many employers also have a waiting period before employees can even begin participating in a 401(k). The average match is 3% with only 10% of employers matching 6% or more of the employee contribution

When it comes to vesting schedules, many employers use a graded vesting schedule that provides a percentage vested up to the 100% vesting schedule, usually after 6 years. Others use a “cliff” vesting schedule which requires a minimum number of service years before the 401(k) matching contributions vest. Only about 1/5th of employers provide immediate vesting and that generally only applies to a safe harbor element of that contribution. 

With the labor market tightening and employers competing for top workers from entry-level college grads to seasoned executives, one way employers are getting more creative in recruiting and retention strategies is to offer more attractive retirement benefit plans. 

Reluctance to Offer Up Immediate Vesting 

Many employers are reluctant to offer up immediate vesting. The purpose of vesting over time is to give the employee an incentive for staying with the company a minimum amount of time. The costs of hiring, training, and bringing a new employee up to speed can be high. Employers need a reasonable retention rate or risk losing investments in new employees. 

Retaining the unvested funds if an employee leaves before the vesting period allows employers to offset some of the costs of worker turnover. However, withholding vestment in the retirement plan may not be a strong motivator for new workers to stay with the company. According to a Pensions & Investments article, experts say that “today's increasingly mobile workers will jump to new jobs for better-paying positions regardless of the money they leave behind in unvested company contributions.”

While delaying vesting for new employees may allow an employer to save more money if the employee leaves before the vesting period is up, it may not be enough of an incentive for the employee to stay with the company. In contrast, when workers have a choice between a company offering immediate vesting and a lengthier vesting process, today's mobile workforce sees the financial benefits in shortened vesting schedules. 

Structuring Competitive Benefits Packages as a Recruiting and Retention Strategy 

Where starting salaries generally fall within a familiar range for equivalent workers, profit-sharing and 401(k) benefit packages are a way for employers to distinguish themselves in a competitive hiring market. According to the article above, Michael Volo, a senior partner at Cammack Retirement Group Inc. sees a loosening of vesting schedules. "As employers compete for talent, I think they're seeing vesting schedules perhaps being a deterrent to attracting high-quality candidates," he added.

Other trends in attracting and retaining new employees involve offering student loan repayment as a job benefit. This benefit is aimed at recent grads who may be burdened with years of undergraduate, graduate, or professional school loans. Structuring these plans given certain time or service requirements can incentivize retaining newer workers where paying off their loans provides an immediate benefit in the workers' debt reduction. To go along with retirement, the sooner a young worker can pay off their loans the sooner they can set aside savings for retirement.  

Employer Benefits Firm for San Diego Businesses

If you have any questions about structuring benefit plans to recruit and retain top talent for your California company, Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm with a focus on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.

About the Author

Marc S. Schechter

Marc Schechter specializes in the areas of employee benefits, ERISA, and business matters.

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