Most often, we work with clients who already have a group retirement plan, or are seeking help to design one. But every once in a while, we get the question “Why should O set up a group retirement plan for my employees?” At Westcoast Actuaries, we believe that after working for the majority of their adult life everyone deserves a comfortable retirement; whatever that means to them.
1 Talent Attraction and Retention
A group plan is valuable tool for talent attraction and retention. While salary is important, employees notice when they are treated well and their employer cares about them. Employees hesitate leaving an organization with a retirement plan to join a company without one. Conversely, having no group plan gives your competitors an advantage. A lack of this important component of total compensation could mean losing out on your ideal candidate, or saying goodbye to an employee who you’ve invested time, money, and training into over the years.
2 Automatic Savings and Saying Goodbye
Your employees might be smart, but they probably aren’t saving enough for retirement. In fact, 29% of working age Canadian have not yet started saving for retirement, 50% of non-retired Canadians are worried about not having enough savings, and 15% of Canadians expect they will never be able to retire completely. You have a valuable tool to help alleviate the strain on both parties associated with an employee who cannot financially afford to retire. Automatic savings come off employees’ paycheques which means part of the battle is won with noticeably less effort compared to employees saving on their own. We think of it a bit like income tax; if tax was not 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. Except this is perhaps only 2-4% of your employee’s paycheque, and it’s money they get in retirement.
3 Free Money
You want to do what’s best for your employees, but in a responsible manner for your business. If your plan is optional, employees can opt-in to the plan if they value what you offer. Depending on your plan design, this could mean instant “free-money” in the form of employer contributions, which they would not receive unless they opt-in. Or you might offer to match a portion of employees’ own contributions giving them a chance to choose how much of the plan they want to use. At Westcoast Actuaries, we promote matching as this encourages employees to allocate additional savings for retirement. If you are concerned about all the free money you are handing over, consider designing your plan with appropriate waiting and vesting periods. The right plan design can attract and retain good employees, without letting those who choose to leave keep all of the employer contributions.
4 Better Investment Return
If some of your employees are already diligent savers for retirement, they are likely to appreciate a group plan even more. Investment management fees applied to a group plan are lower than those applied to an individual plan. The savers in your company are likely to recognize that lower fees lead to higher return every year, and to higher account balances at retirement. You have to provide a boost to your employees’ savings beyond employer contributions, which is part of helping your employees feel valued and leading to their maintained loyalty.
This blog post was brought to you by Andrea Schmelcher, CFA,
Investment Consultant at Westcoast Actuaries
If you are considering a group plan for your employees contact Westcoast Actuaries. They’ll work with you to understand your needs and concerns and design a plan that is tailored to you.