How to boost your employees’ retirement fund without additional company costs
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If 2020 has taught us anything, it’s that amazing and resilient employees are the backbone of great companies and it’s important to retain them. So how can you acknowledge that and help enable the retirement that your employees deserve, without breaking the bank?
Now more than ever, the key is to dive in and engage your retirement benefit provider to bring their horsepower to the table.
The real path to retirement success lies in “hands-on” financial planning that grows with you. No single message or plan will resonate with every person across their various life stages. Someone who is just starting their career in their 20s needs a certain type of advice, and as an employee moves through their career, that advice must change accordingly. A cookie-cutter approach is never going to add the value that employees truly need to achieve their best retirement. The problem? Many providers of retirement benefits in Canada specialize in that cookie-cutter approach, under the guise of simplifying administration or lowering costs, leaving employees to secure a proper retirement almost by accident, at best.
Employers can focus on a few key areas to increase value for employees and demonstrate that the long-term financial success of staff is a priority for the company:
1. Invest in small amounts of time to provide exponential employee benefits
Many organizations invest three, four or five per cent or more of an employee’s pay into a retirement savings plan for employees but are hesitant to allocate time for a single one-hour meeting per year to have staff meet with a retirement professional. For an employee who works 2,000 hours per year, this represents only 0.05 per cent of that same employee’s wage – but it adds significant benefit to their retirement. Furthermore, if the employer takes the lead on this activity, it shows employees that the company cares and is willing to explore multiple avenues to help enable the best outcome for that employee, increasing their goodwill. According to Ipsos Reid’s 2011 Value of Financial Advice Study, folks who have the chance to meet with an advisor regularly have up to four times more investable assets, save more regularly for retirement and retain greater discipline during more volatile markets.
2. Take advantage of your plan provider’s different service levels
A plan provider should offer guidance and value to all of the different employees in your diverse organization – not just the owners, and not just the newbies. This is where that one-size, cookie-cutter approach is not recommended. Booklets and websites may help get employees to opt into a plan (even that is debatable), but human beings are typically needed to properly guide a person’s financial journey. Someone who is just starting their savings journey will require a tailored conversation that possibly incorporates other financial concerns, such as debt and budgeting. Whereas someone who is nearing retirement may need more income planning information that warrants a different advisor trained in those financial areas. And it seems every company has that select group of employees who – for any number of reasons – know more about investing than you do.
Finding the right fit for financial advice isn’t always about the amount of an employee’s income, or the hypothetical colour of their collar. Your service provider needs to have the resources and diversity in their staff to handle all of your different employees. And don’t shy away from offering that higher level of service to your key employees who may have more complex needs – the numbers are only part of their retirement picture. As an employer, taking advantage of a comprehensive, full-service approach won’t cost extra, but has meaningful benefits for your employees.
3. Get SMarT
We frequently ask companies, “Are your employees saving enough for retirement?” It’s a trick question: almost always, they aren’t. Most of us aren’t. The easiest way to change that is to offer them an out-of-this-world match on their contributions, enticing them to save more. But who can afford to do that in 2020 and stay competitive (or heck, keep the doors open)? The good news: there is a way to encourage employees to save more and achieve a better-funded retirement, without costing you a penny.
The concept is called “Save More Tomorrow” (SMarT) and was developed by behavioral economics researchers in the U.S., Shlomo Benartzi and Richard Thaler. To summarize their research, knowing that folks are hardwired to make decisions in a certain way that doesn’t necessarily drive the best retirement outcome, Benartzi and Thaler created a type of SMarT savings plan, where employees were able to opt into a program that allowed them to split their future cost-of-living raises in half, putting half to work in the company retirement savings plan (passively increasing their contributions annually), and taking the other half as a pay increase (so their pay would never decrease).
A Regina employer implemented just this type of plan. Of the staff who were offered the program, 40 per cent accepted and zero opted out after the first annual pay increase – resulting in a large number of employees automatically increasing their retirement savings while feeling none of the pain and costing the company nothing extra in the end. The research also shows that blue collar folks are likely to get more out of a program like this and stay opted in for the long haul, increasing their retirement savings rates by up to triple the amount.
You as a company can offer this simple SMarT solution to help your employees get around the hardwiring, and it’s also applicable to those who think their plan is doing “just fine” right now. A simple but brilliant way to kick-start growth of an otherwise average plan and realize better outcomes.
Paul Forer, B. Comm., is a vice-president, portfolio manager and investment advisor at RBC Dominion Securities. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. investment advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The strategies and advice in this report are provided for general guidance. Readers should consult their own investment advisor when planning to implement a strategy. Interest rates, market conditions, special offers, tax rulings and other investment factors are subject to change. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member – Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence. © 2020 RBC Dominion Securities Inc. All rights reserved.