The ICI tackles the reasons why people save and why companies set up retirement plans. Though intuitive, it’s always good to have data and analysis from an independent source, not only to make business decisions but as touch points for clients and prospects.
One of the most insightful comments in the ICI report is that companies will not maintain or add a retirement plan if the costs outweigh the perceived benefits. In other words, companies will not sponsor a plan if their employees are not willing to give up some of their compensation to offset the cost of setting up and maintaining the plan. That sounds obvious, but if your employees don’t see the value of your DC plan, why maintain it? It some cases it can be perceived as a negative — for example, if an employee would rather take the benefit as cash compensation.
Other findings:
• 49% of older workers indicate retirement as the primary reason for saving, compared with 32% overall. The percentage is just 11% for 21- to 29-year-olds, who value liquidity and education more highly.
• Only 17% of firms with fewer than 10 employees offered a retirement plan, compared with 68% of plans that have 1,000 or more workers — yet participation rates don’t vary widely among companies that offer a plan.
• Workers at smaller firms tend to value cash compensation over benefits.
• Owners are inhibited by non-discrimination testing, which can limit the amount they can save through a workplace plan.
Among companies that sponsor retirement plans, regardless of their size, their workforces are similar in terms of age, income and part-time status — which are also the three drivers of whether a person is likely to save or value saving for retirement.
One size does not fit all clients or prospects. Understanding the type of plan a company wants based on the composition of their workforce will help plan advisors deliver the right solution to the right company — even if there’s already a good fit between the advisor and the plan sponsor.
