As more businesses transition from DB plans to 401(k)s, it’s getting harder for employers to project when their retirement-age workers will actually walk away from the job.
Writing in the most recent 2015 issue of NAPA Net the Magazine, Steff Chalk notes that if employers don’t ensure that their 401(k) actually helps employees be ready to retire “on time” — that is, at their anticipated retirement age — they may end up hurting themselves in the long run in the form of increased turnover and higher labor and health care costs.
Chalk cites a study from Boston College which reported that businesses can expect half of their employees currently between 50 and 60 years old to lack the resources to retire on time, and for a quarter of their employees to stay on full-time at least two years after their industry’s standard retirement age.
Chalk says that weak 401(k) plans can create a scenario where an employer must either force out long-tenured employees before they want to leave, or retain them and deal with the higher salary, benefit and absenteeism costs that come with older workers. In addition, Chalk says that older workers staying on longer makes it harder for younger employees to advance, and increases the likelihood that they will take a better job elsewhere.
Employers that still offer a defined benefit plan have a tremendous advantage, Chalk says, and one that many businesses don’t fully utilize. He writes that a company that can predict their employees’ exit dates two or three years in advance is a healthier company, and leads to a stronger and more engaged workforce at all ages.
It is possible for employers to manage retirement readiness in a 401(k) to achieve outcomes similar to a pension, Chalk says; doing so just requires more time and effort. But he adds that not having a strategy at all, and not being able to project future labor and health care costs years into the future, will likely cause far more pain for a passive 401(k) plan sponsor.
In addition to Chalk’s regular “Inside the Plan Sponsor’s Mind” column, the Summer issue of NAPA Net the Magazine highlights what the new generation of plan advisors are thinking — including the 2015 NAPA “Young Guns” list — along with a recap of this year’s NAPA 401(k) Summit in San Diego, and the cover story, which examines five key factors that advisors should look at when determining whether longevity-planning options are right for their clients. The Summer issue also features regular contributors Nevin Adams, Warren Cormier, David Levine, Brian Graff, Don Trone, Fred Barstein, Jerry Bramlett and NAPA President Joe DeNoyior — and marks the debut of a new column on financial wellness by Jania Stout.
To view Chalk’s column, click here and select “Where 401(k) Plans Fail.” And to view a pdf of the full 48-page issue, click here.
