Retirement plan design matters: How employers can assess the effectiveness of their 401(k)s
The challenge is to find ways to create pension-like incentives within the context of a defined contribution retirement plan, according to the report. While a few companies, such as the Aerospace Corporation, General Motors, and IBM, have recently reopened their pension plans to take advantage of relatively high interest rates and inflation, this remains a very unlikely step for most companies needing to recover the right retention and retirement incentives.
More likely solutions will revolve around instituting phased retirement options, embracing flexible work arrangements for experienced workers, and/or enhancing the substance and accessibility of opportunities to transform DC distributions into guaranteed annuity income. The latter solution is aimed to reduce perceived risks associated with retirement in an uncertain economic environment, according to the report.
Some of the areas of opportunity to increase the desired impact or retirement plans and/or to better align them with other workforce practices, according to SOA, include:
- Apply fund surpluses to re-open DB plans and increase the number of eligible employees
- Phased retirement programs that enable employees to extend working lives on terms favorable to both employer and employee
- Early retirement penalties or deductions to encourage longevity with the firm
- Service requirement rule changes to influence employee retirement timing
- Lump sum inducements to stay/go
- Increase employees’ options for collecting retirement benefits with eligibility tied to age and service requirements (e.g., annuitizing 401(k) assets through the DB plan)
- Align retirement plan design with other practices known to retain older employees (e.g., support for engaging in training, flexible work practices, high-performance work practices)
- Communicate how retirement plan features are aligned with other age-friendly workforce practices
We talked with Anna M. Rappaport, a past president of the SOA and chairs its Committee on Post-Retirement Needs and Risks, to learn more about how retirement plans can be designed to help retain top talent and promote organizational success.
Q: How can employers assess the effectiveness of their retirement plan?
Rappaport: The internal labor market analysis outlined in the report, Understanding and Enhancing the Workforce Impact of Retirement Plans, provides a framework for assessing the effectiveness of retirement plans and its impact on businesses. This comprehensive framework utilizes a large amount of available data to effectively evaluate how retirement plans contribute to an organization’s mission and goals.
Q: How can employers design retirement plans to retain top talent?
Rappaport: The framework outlined in the report helps businesses evaluate how defined benefit and defined contribution plans can be designed to meet the needs of their business, enhancing both talent retention and workforce effectiveness.
Q: Why are retirement plans becoming an essential investment in workforce retention?
Rappaport: Retirement plans are becoming an essential investment in workforce retention because people are crucial to business success. For businesses that rely on intellectual capital, retaining top talent over the long term is vital. Similarly, organizations that need a steady supply of skilled workers can use retirement plans as a key tool to attract and retain the talent necessary to perform critical tasks.