Most often, we work with clients who already have a group retirement plan in place, or who are seeking help to design one. But every once in a while, we get the question, “Why should I set up a group retirement plan for my employees?” At Westcoast, we believe that everyone, after working for the majority of their adult life, deserves a comfortable retirement—whatever that means to them. But even if that’s not your mantra, here are a few more reasons why you should offer a group retirement plan for your business.
1. Talent Attraction and Retention
A group retirement plan makes your workplace stand out, and is therefore a valuable tool for talent attraction and retention. Employees notice when they are treated well, and they think twice about leaving an organization with a retirement plan—especially to join a company without one. Likewise, if your competitors are offering a plan and you aren’t, that’s a component of total compensation, which might mean losing out on your ideal candidate or having to say goodbye to an employee you’ve invested time and money into training. A group retirement plan allows you to provide a long-term incentive for staff to join and stay. Sure, there’s the cost of contributions and a bit of administration involved, but drawing in the right people and keeping them can yield many long-term benefits for your institution, including cutting down on the hassle of employee turnover and reducing training costs.
2. Automatic Savings and Saying Goodbye
Your employees might be smart, but they probably aren’t saving enough for retirement—and they’re not alone. Recent surveys indicate that 50% of Canadians are worried about having enough savings for retirement, while 29% have not yet started saving, and 15% expect they will never be able to retire completely. While it’s always tough to say goodbye to dedicated employees who have reached the natural end of their careers, it’s not typically a positive experience for them to stay for years longer because they can’t afford to retire. A group retirement plan is a valuable tool to help alleviate that strain—not only for your employees, but for you, too. When a fraction of every paycheck is automatically applied to savings before an employee receives their income, part of the battle to save for retirement is being won with noticeably less effort compared to employees saving on their own. We think of this “out of sight, out of mind” solution a bit like income tax: if tax wasn’t remitted before earnings are paid to employees, a lot of people would find it difficult to pay the Tax Man at the end of the year. The same applies to a group retirement plan—except this fraction is perhaps only 2-4% of your employee’s paycheck, and it’s money they get back in retirement.
3. Free Money
“Free money” might not seem like a benefit to you as the employer, but part of why a group plan is good for you boils down to why your current and potential employees value it. If your plan is optional, employees can opt in or out as desired. Depending on your plan design, this could mean instant “free money” that they wouldn’t receive otherwise. Or you might offer to match a portion of employees’ contributions—more free money! At Westcoast, we love contribution-matching; it encourages employees to allocate additional savings for retirement. And if you’re concerned about all this “free money” you’re handing over, consider designing your plan with an appropriate vesting period. The right plan design can attract and retain good employees, without letting those who choose to leave your organization keep all of the employer contributions you’ve made.
4. Higher Account Balances
Perhaps your employees are already diligent savers, so you don’t see the point in offering a group retirement plan. If that’s the case, keep in mind that your staff can still benefit from cheaper fees gained through a group plan. These employees understand that lower fees mean savings grow faster, leading to higher account balances at retirement. Even without providing employer base contributions or matching, implementing a group plan provides a boost to your employees’ savings. Higher savings help your employees feel valued, maintaining and even heightening their loyalty to the firm.
If you are considering a group retirement plan for your employees, but have been putting it off, now is the time to contact Westcoast. We’ll work with you to understand your needs and concerns, and design a plan that is tailored to you and your operations.
Andrea Schmelcher, CFA