More businesses offering retirement plan to recruit, retain employees; Find out how SCRS can helpBy on
Associations | Business Practices | Legal
While employers compete to recruit and retain employees – some by raising salaries and wages – 401(k) and retirement plans are becoming a commonly used tool as well.
A survey of 1,000 full-time employees 18 years and older conducted in September 2021 by Betterment for Business and Market Cube found that 65% of the respondents would leave their current jobs for one that offers a high-quality 401(k) or other retirement plan and 56% would leave their job for one that offers a 401(k) matching plan.
The Wall Street Journal reports that about 16% of large and midsize employers plan to raise their 401(k) contributions or reinstate a previously suspended match this year, while another 8% said they are considering doing so, according to preliminary results of a survey of about 100 companies conducted in fall 2021 by investment-consulting firm Callan LLC.
Fourteen states have signed retirement plan legislation into law including California, Connecticut, Illinois, Massachusetts, Oregon, Washington, Colorado, Maine, Maryland, New Jersey, New Mexico, Virginia, Vermont, and New York, according to ADP. Most state plans are aimed at small businesses that have five to 100 employees. Not all states have implemented their plans yet.
Massachusetts law only applies to nonprofits and is voluntary. State plans in New Mexico, Vermont, and Washington are also voluntary. At least another 16 states have considered mandating a retirement plan.
Capital management solutions provider Paychex calls the lack of retirement savings in many states a “crisis” and noted that 600,000 workers in Connecticut and millions in New York don’t have access to retirement plans. The most recent Federal Reserve report on economic well-being of U.S. households, released in May 2021, shows that roughly a quarter of non-retired adults don’t have retirement savings.
As states enact requirements, employers need to pay attention to when enforcement provisions will go into effect. For instance, California law requires employers with five or more employees to offer a retirement plan or connect employees with the state’s official CalSavers IRA option. It’s already in effect for employers with 50 to more than 100 employees. The registration deadline for employers with more than five employees is June 30, 2022.
Those not in compliance will be penalized beginning this month, according to a notice from labor and employment law firm Scott & Whitehead. The CalSavers website states, “Each eligible employer that, without good cause, fails to allow its eligible employees to participate in CalSavers, on or before 90 days after service of notice of its failure to comply, shall pay a penalty of $250 per eligible employee if noncompliance extends 90 days or more after the notice, and if found to be in noncompliance 180 days or more after the notice, an additional penalty of $500 per eligible employee.”
In New York, private sector employers of 10 or more who don’t provide their employees with a retirement savings plan must automatically enroll them in New York State’s Secure Choice Savings Plan. Employers that don’t do either within 90 days of receiving a non-compliance notice will be fined $250 for “each employee for each calendar year or portion of a calendar year during which the employee neither was enrolled in the program nor had elected out of participation in the program; or for each calendar year beginning after the date a penalty has been assessed” $500 for any portion of the calendar year that an employee continues to be unenrolled, according to the law.
Coley Eckenrode, a partner and financial advisor with Virginia Asset Management, said while he doesn’t know what every state requires he’s seen it mandated that employers offer deferment into a retirement savings plan through payroll.
“The employee gets the immediate tax advantage versus if they did it in their individual IRA account,” Eckenrode said. “They’re usually contributing to that account with post-tax dollars and then it’s reconciled when they file their tax returns so they don’t really realize that tax benefit but once a year as opposed to every other week through pay cycle or however frequent payroll is.”
Eckenrode is an advisor for the Society for Collision Repair Specialists’ (SCRS) 401(k) plan, which shops can take advantage of to offer retirement savings without all of the administrative and legal responsibilities. Instead, the SCRS-sponsored Multiple Employer Plan (MEP) handles all of that.
“Through SCRS, we try to eliminate a lot of those responsibilities and risks,” Eckenrode said. “We’ll do the due diligence on the vendors and put together a plan. We’ll do the due diligence on a recurring basis on the investment lineup. We’ll hire a third-party administrator to file the tax return and we’ll also act as co-fiduciaries on the plan so we’re going to take on some of the legal responsibilities as well as trying to offload some of the administrative responsibilities not only initially, but recurring.”
The advantage of SCRS’ plan is also cost savings. Because several companies are in one plan, the total plan balance and number of employees is higher and it’s already been negotiated that as certain benchmarks are met, such as number of dollars or participants, employees will see price reductions, Eckenrode said.
While the WSJ article focuses on trends within larger businesses across the job market, smaller businesses should be mindful of what larger organizations within the industry are promoting to potential candidates. According to their website, Caliber Collision offers automatic payroll deductions of 2% pre-tax pay into a 401(k) plan upon hire date for full-time employees. Part-time, temporary and seasonal employees are eligible after 1,000 hours of service within 12 months. Unless the contribution rate is changed by the employee, it will automatically increase 1% every year until the plan’s maximum deferral rate of 15% is reached. Service King Collision offers a 50% employer match for up to 8% of compensation that is deferred into its 401(k) plan, according to its website.
Focus Advisors Managing Director David Roberts said he most often talks to business owners that have two to 10 shops, and they’re doing “everything they can to attract, retain and train people.”
“Historically, 401(k)s were mostly in place for the benefit of the owners of the business,” Roberts said. “The owner would contribute money but would not contribute much on behalf of his employees and the employees would rather take home cash than contributions to their 401(k)s.”
That’s the case in many small businesses – take-home cash is favored, he added.
“That’s really hard to overcome and the only way to overcome it is for the employer to actually put the money in on behalf of the employees,” Roberts said, and a lot of people don’t see their 401(k) plan as a benefit until it comes time to use it such as for moving or buying a house.
A 401(k) is most attractive to those who are planning their future in the automotive industry as a career rather than just a job.
“… for people who have been in there for seven or eight years and their employers were never giving them any money, never putting anything into their 401(k), it’s kind of an afterthought for them,” Roberts said.
401(k) matches by employers “ebbs and flows,” according to Eckenrode. Throughout the COVID-19 pandemic, companies eliminated or reduced contributions and are now gradually getting back to a more standard match, which is 3-4%, he said.
“It’s partly driven from economics but also from an employee retention and recruiting tool,” Eckenrode said.
Roberts recommends employers talk to their employees about the importance of having retirement money tucked away. “This isn’t just for this week or next week or this year but it’s for your long-term future,” he said.
Keep in mind that even just 2% of every paycheck adds up over the years to a lot of money and providing the option for automatic deductions is even better because employees are more likely to enroll that way rather than having to choose contribution amounts for themselves, Roberts said.
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