Are you one of those plan sponsors that is so committed to your employees that you maintain an ongoing defined benefit plan? If you are, you have a unique opportunity, and you have it today. There might never have been as good a time to communicate that plan and the advantages that it provides to your employees than now!
Why, and why now?
Recent surveys have shown that employees want retirement benefits more than any other type of benefit program they are offered. Among the people who ranked retirement as their top priority among benefit programs, the overwhelming number one reason is that they want guaranteed lifetime income. And they want it at a fair price.
The war for talent is a top challenge for almost every Human Resources executive and it has even made it to the list of top priorities for CFOs. At the same time, a top priority within that war for talent is building a diverse and inclusive workforce with equitable outcomes across the board.
What should you communicate to them?
As is always the case, your communication with your employees should fit with your workforce and your culture. But there are several themes that we think transcend corporate culture and there is no better time than the present to remind your employees how much you care about them.
No matter how your 401(k) investments are doing, your pension continues to grow – That’s right. Sometimes your employees watch their 401(k) balances increase and sometimes those balances decline. Pensions are different though. The annual guaranteed lifetime income employees can get from those pensions continues to grow.
While inflation may affect your ability to save in your 401(k), your pension still continues to grow. Inflation is cutting into the ability of most employees to contribute to their 401(k). Your budget for pay increases has likely not kept up with inflation over the last year or so. That’s okay; nobody else’s has either. For your employees, however, their ability to defer to that 401(k) has been diminished. There’s only so much money to go around and they can’t skip food, housing, utilities, and the like. They defer less. And that means that matching contributions on their behalf decline. But the rate at which their pensions are increasing has not changed. It’s not dependent on their personal budgets.
DB plans are designed to provide lifetime income. Even in the best cases, however, defined contribution plans simply don’t offer as valuable or as equitable an annuity as a defined benefit plans do at the same cost. Defined benefit plans were established to provide lifetime income. It’s when you offer a DB plan and a 401(k) on top of it, your employees have the best of both worlds – guaranteed income plus a supplement.
You’re not anti-401(k); you’re pro-DB – Very nearly 100% of companies that offer DB plans also offer supplemental savings opportunities through 401(k) or similar plans. When 401(k) plans became legal more than 40 years ago, they were intended to provide a supplemental savings opportunity for employees who wanted to pursue a disciplined approach to add to their retirements.
There is no better time than now. As a DB plan sponsor, you are making a special commitment to your employees. When you communicate it actively and frequently to your employees, you’re helping them understand and appreciate the full value of their benefits and how unique they are compared to your competitors. You also have a special opportunity to help win the war for talent as you build a diverse and inclusive workforce with equitable outcomes for all those employees that stay the course with you.
Are you interested in enhancing the communication of your defined benefit plan to your employees? October Three is here to help. Learn more about our Employee Benefit Communications services today.