Although the economy seems to be slowing down as of late, the fierce competition over talent persists in a still tight labour market. This coupled with ever decreasing tenureships is posing more challenges for employers to not only attract but also retain talent over the long-term.
There are without a doubt many culture-related factors that make certain employers more desirable than others. That being said, compensation programs play a key role. Although more employers nowadays like to flaunt benefits such as free gym memberships, yoga classes, etc., retirement plans are perhaps one of the most important components of a benefits package. The attention given to them however does not always reflect that fact.
Retirement plan vs higher salary
A recent survey conducted by HOOPP revealed that 80% of Canadians would prefer to have a pension plan or a better pension plan over a salary increase. This is quite significant considering the fact that retirement planning is often one of the least focused on aspects of a benefits package. The reality for most Canadians is that present day financial priorities almost always take precedence over saving for retirement on their own. While government programs like CPP and OAS provide for a portion of income in retirement, those payments in themselves are simply inadequate to support a reasonably comfortable retirement for most Canadians.
This is precisely why employers need to place more focus on offering their employees robust retirement plans. Those that do not currently have plans in place may find that making one available to their staff is an investment that pays for itself in higher employee retention as well as a better competitive edge in the market. This is further supported by a 2016 ADP Canada survey showing that 77% of employees say they would consider changing jobs if another employer offered better retirement support.
While having a plan in place is of paramount importance, so is offering a material match to employee contributions. After all, group retirement plans that do not include an employer match tend to have very low participation rates (often hovering around 10-15%) and are usually not viewed as a genuine benefit by the employee base.
So, how much should an employer contribute? As mentioned in a previous blog, matching contributions really depend on the financial capability of an employer, but they tend to range from 3% to 6% in Canada. Many employers wrongly assume that offering a match within that range is an onerous financial burden. This is not necessarily the case. To illustrate, let’s take the example of an SMB with 32 employees where the average salary is $50,000. If this business were to offer its employees a group RRSP with a 3% match, the total cost would be $48,000. And this figure is assuming 100% participation rates, a rare feat in non-mandatory plans. In other words, it would cost the company just under the average salary of a single employee to offer a benefit that would help the entire staff be better prepared for retirement.
Looked at from a different angle, the average cost of offering a 3% match is $1,500 per employee. A salary increase of that value may not be perceived as substantial by the employee, but investing $1,500 a year into their future can go a very long way thanks to the magic of compound growth.
Retirement planning support
As more employers are realizing nowadays, it doesn’t just stop at offering employees a plan with a match. Providing plan members with the resources needed to create a holistic plan for retirement is equally important. This is why Open Access launched the Retirement Readiness Club, a program available for plan members offering retirement planning content and tools. Those who join the Club would not only learn about things such as budgeting and how much they should be saving, but also the emotional aspects of retirement.
These resources are ultimately intended to help employees develop an action plan of what they need to do to prepare for retirement, and what are the things they should be doing during retirement to ensure sustainability and well-being. Employers that offer their employees support in those areas have an opportunity to truly stand out.
Showing your organization cares
From a financial standpoint, it is quite clear that offering retirement planning support can make a significant difference in employees’ retirement outcomes. But looking beyond the math, there are some non-tangible advantages that translate into tangible benefits for employers. When employees feel that their employer cares about their well-being, in both the short and long-term, this boosts morale and helps build goodwill.
In a time when ‘job hopping’ is becoming an increasingly prevalent phenomenon, particularly among millennials, communicating to employees that their long-term wellbeing is an organizational priority can present a very powerful message.
As a group retirement plan provider, Open Access is changing the way retirement plans are run by unburdening employees from the need to make investment decisions on their own and instead managing portfolios on their behalf. We do this as a fiduciary, meaning no proprietary products, zero conflicts of interest, and no hidden fees.