Building a Competitive Edge: Offering 401k and Pension Plans to Attract Top Talent
Competition for the best talent in the labor market is getting stronger. Manufacturing and construction jobs have been hit the hardest, with COVID-19 disruptions causing a labor shortage and pushing wages up by over 20% since early 2020.
Every company is looking for new strategies to differentiate themselves and attract the best candidates. So, you're not alone if you find it difficult to make your company stand out to potential employees.
Fortunately, you have come to the right place for effective solutions. Here, we’ll cover:
The details of 401k and pension plans
6 key considerations when offering 401k and pension plans
Continue reading to learn how 401k and pension plans can give your company the competitive edge it needs to thrive in a tough market.
What Are 401k and Pension Plans + Benefits
Offering 401k and pension plans significantly enhances your business's appeal. These benefits attract top talent, and more importantly, they retain it. The truth is competitive retirement plans matter in today’s job market. They provide employees with financial security and boost their commitment to your company.
When employees feel secure in their financial future, their productivity increases, which allows them to focus more on their roles and invest themselves in the success of the business.
"Offering a 401(k) has helped us both attract and retain top talent while helping our valued employees start saving for retirement." - Robert Reeder, CEO of GlassView, shares on Forbes.
A well-structured 401k plan allows employees to save consistently with tax advantages. Contributions are made pre-tax and reduce their taxable income. The money grows tax-deferred, which means more money compounds over time and maximizes potential returns.
For you, the employer, contributions to employees' plans are tax-deductible, though the deduction for contributions to a defined contribution plan cannot exceed 25% of the compensation paid or accrued during the year to eligible employees. This lowers your business's taxable income, and honestly, it's a smart financial move.
Pension plans also still hold considerable value because they offer a defined benefit. This guarantees a specific payout upon retirement, which can be a strong draw for prospective employees who prefer stability over the potential high returns of a 401k. What’s better, implementing a pension plan can set your company apart from others. It makes a strong statement about your commitment to employee welfare.
Moreover, these retirement benefits can be tailored to meet your business's and employees' needs. Flexibility in plan design allows you to control costs while still offering substantial benefits. The presence of these plans can also enhance your company's reputation by positioning your business as an employer of choice.
You should consider the long-term impact.
Retirement plans are more than just benefits – they are investments in your workforce. They cultivate a motivated, dedicated team and can help you manage turnover and reduce hiring costs. Every dollar invested in a comprehensive retirement strategy can yield substantial employee engagement and satisfaction returns. They ensure the longevity and health of your business.
As we always say, choose wisely and plan thoughtfully.
That brings us to the next point.
401k vs. Pension Plans: Key Differences
401k and pension plans are two distinct retirement benefits that companies can offer to attract and retain top talent. Here’s a quick breakdown of their primary differences:
6 Key Considerations when Offering 401k and Pension Plans
Offering retirement plans is a big step for your business. A well-designed plan can boost your employee’s satisfaction and retention. Understanding the key factors allows you to create a program that works for both your team and your budget.
We recommend that you choose wisely and plan everything out thoughtfully. Here's how to make informed choices and set your employees up for a secure future.
1) Eligibility Requirements
Eligibility requirements play a key role in shaping the structure and appeal of 401(k) and pension plans for employers and employees. They are the foundation for plan design and ensure the benefits align well with company policies and demographics.
Here are eligibility requirements for the simple 401(k) plan:
Here are key reasons why maintaining clear and appropriate eligibility requirements is important for any business owner looking to offer these plans:
Legal compliance: This ensures your plan adheres to all regulatory demands. You may already know that various plans and industries have different requirements. So, meeting these standards minimizes the risk of legal troubles and fines.
Employee satisfaction: When you tailor eligibility to match what your employees expect and need, their satisfaction climbs, and so does their participation. This, in turn, boosts retention rates.
Cost management: You can control the costs of offering retirement benefits by defining who qualifies and when. This can make budgeting more predictable and, therefore, more strategic for your company.
Plan effectiveness: Properly set eligibility criteria so the benefits reach the right employees. This boosts the overall effectiveness of the plan.
Competitive advantage: A retirement plan with appealing eligibility criteria positions your company as a desirable workplace. As a result, you enhance your standing in the competitive job market.
Insider tip: You should regularly review and adjust your eligibility criteria to keep your plan competitive and aligned with your team's needs. Work with your plan administrator to understand the impact of changes and ensure your offerings meet both workforce demands and business goals.
2) Contribution Limits
Contribution limits are important when structuring 401(k) and pension plans. Basically, they dictate the framework within which employees can save, shaping the plan's utility and appeal.
Here are the 401k limits you can consider:
Here are some reasons for carefully setting these limits:
Regulatory Adherence
You ensure compliance with IRS guidelines, which is important for maintaining the plan's tax-advantaged status. There are several tax benefits for employers, but violating the rules can lead to severe financial repercussions, which you definitely want to avoid.
Employee Motivation
You set a ceiling that encourages consistent saving without overwhelming employees. The right limit balances ambition with practicality, which means more employees will be encouraged to save more.
Insider tip: From experience, we recommend keeping your contribution limits up-to-date to stay compliant and attract top talent. You should partner with a skilled plan administrator to simplify adjustments and maximize your retirement plan's impact.
Financial Forecasting
Setting limits lets you predict future financial commitments accurately. One reason is that employer contributions hinge on employee saving behavior. That’s why precise forecasts are crucial.
Economic Flexibility
You can adapt to economic shifts better. Adjusting contribution limits in response to financial conditions can sustain or increase employee participation. This stabilizes the plan’s health over time.
3) Investment Options
The range of investment options within 401(k) and pension plans plays a role in determining an employee's retirement savings trajectory. These choices affect participants' ability to adjust their investment strategies to fit personal financial objectives and risk levels.
There are five types of 401(k) plans: Traditional, Safe harbor, Simple, Solo, and Roth.
Diversification helps you spread risk across various assets by smoothing out returns over time. This stability fosters confidence in you and your employees and creates a foundation of trust.
Employee empowerment allows your team to take control of their financial futures. Offering choices that align with their goals allows you to build trust in the plan and increase their commitment and satisfaction.
Plan performance directly impacts how well your retirement plan fulfills its purpose. A diverse portfolio delivers reliable growth, which can improve your employees' financial outlook and peace of mind.
Flexibility allows participants to adjust strategies during life changes or market shifts. This ensures they stay on track without halting contributions and maintain progress toward their goals.
Engagement grows when employees actively participate in meaningful investment decisions. Their involvement leads to better investment outcomes and a stronger connection to the plan.
Insider tip: You should offer various investment options to boost employee satisfaction and stabilize your plan’s health. Work with a financial advisor to regularly update offerings and keep them aligned with market trends and employee needs for maximum impact.
Retention improves when your plan includes varied and appealing options. Employees are more likely to stay with your company because they’ll know their financial needs are being met thoughtfully.
4) Plan Administration
Administering a 401(k) or pension plan involves more than routine management tasks. It involves many details that allow plans to operate smoothly and adhere to legal standards.
Insider tip: Strong administration is key to a successful retirement plan. We’ve seen how experienced administrators simplify compliance and boost efficiency. When you invest in training and updated tools, you not only improve management but also increase employee trust and satisfaction. This keeps your plan a valuable asset for everyone involved.
Here’s why detailed administration is important for you:
Plan efficiency: It boosts the plan's operational efficiency. Timely updates and adjustments keep the plan effective and relevant.
Cost management: Efficient administration controls costs and prevents unnecessary expenses that could diminish the plan's overall value.
Participant satisfaction: You can improve participant satisfaction by providing clear, accurate information and handling inquiries and transactions swiftly.
Data security: This secures the privacy and integrity of participant data - a cornerstone in maintaining trust and complying with stringent privacy laws.
Fiduciary responsibility: Adhering to fiduciary obligations protects the interests of participants. That’s how you ensure the plan operates with their best interests at heart.
Error reduction: Reduces mistakes in contributions, allocations, and disbursements, which are critical for maintaining the plan’s integrity.
5) Compliance with Regulations
Compliance with relevant regulations when offering 401(k) and pension plans is key to the credibility and sustainability of the plan. Regulatory compliance affects various aspects of plan management and has deep implications for the employer and the employees.
Here’s a step-by-step guide for compliance, from determining the applicable state laws to responding to requests:
And here are fundamental reasons why this aspect is important:
Legal Safety
Keeping your retirement plan compliant protects you from legal troubles and potential penalties. Compliance ensures your plan is a financial benefit and a legal safeguard.
In FY 2023, the IRS identified over $25.6 billion in additional taxes for late-filed returns and managed to collect nearly $2.8 billion from delinquent filings. Staying compliant allows you to protect your employees' savings and your company’s reputation.
Plan Integrity
Your plan’s integrity ensures it remains a dependable tool for employees saving for their future. When your plan operates seamlessly and stays aligned with its intended purpose, it instills confidence in employees. Think of it as the backbone of your benefits strategy - one that stands firm in both performance and purpose.
Trust and Confidence
Employees are more likely to contribute consistently when they trust the system. Clear communication about compliance and ethical management fosters this trust.
“Trust starts with transparency. Employees who believe in the plan will stick with it longer.” - Jake Jorgovan, Industry Analyst, Podcast Expert, & Growth Consultant
Financial Security
Compliance isn’t just about avoiding fines - it’s about ensuring the plan’s financial health. When assets are managed under proper legal and ethical guidelines, you create a stable financial future for your team. This not only boosts confidence but also strengthens loyalty.
Market Competitiveness
A compliant, well-managed retirement plan makes your company more attractive to top-tier candidates. In today’s competitive labor market, offering a trustworthy plan can make all the difference. A 2022 WTW survey found that 60% of employees consider benefits like retirement plans critical when deciding to stay with their current employer.
Operational Transparency
Transparent operations allow for better monitoring and build trust with participants. When employees can see how their contributions are managed and monitored, they’re more likely to stay with your organization. Operational transparency also makes compliance easier, giving you peace of mind.
Future Viability
Compliance keeps your plan adaptable to new regulations and future requirements. This future-proofing ensures the plan remains viable for decades. Regularly updating your policies protects your business and employees from unforeseen challenges while securing long-term stability.
Insider tip: We've seen firsthand how staying on top of compliance reduces risks and strengthens retirement plans. Regular audits and advice from legal experts help you stay aligned with changing laws. This protects you from potential liabilities and ensures your plan remains a trusted financial tool for your team’s future. Stay proactive, and you’ll safeguard both your business and your employees' confidence.
6) Employee Communication and Education
Effective communication and education about 401(k) and pension plans must ensure employees understand and make the most of these benefits. Clear information delivery increases participation rates and overall satisfaction with the retirement planning process.
Here are the key reasons why prioritizing employee communication and education is important:
Increased participation: Clear information boosts enrollment rates as employees understand the benefits and the steps needed to participate.
Informed decisions: Empower employees to make knowledgeable choices regarding their investments and contributions based on their financial goals. In the long term, that’s how they’ll get better results.
Plan utilization: Enhances how effectively employees use the plan and maximize potential benefits like employer matches and tax advantages. Again, this leads to better 401k results.
Risk management: Helps employees understand the risks associated with different investment options, leading to more prudent decision-making. Thus, they can benefit from the results of their wiser investments.
Feedback loop: Encourages participant feedback, which can guide future enhancements to the plan. Making your plan better on a consistent basis means you can maximize all the other benefits.
Employee loyalty: Builds trust and loyalty among the workforce, as employees value employers who facilitate their understanding and effective use of benefits.
Insider tip: We’ve learned that regular education and personalized advice can make a big difference. So, you should offer quarterly workshops and one-on-one sessions with financial advisors. This keeps your employees informed, boosts their confidence in the plan, and fosters a strong culture of financial wellness in your company.
Best Practices for Offering Retirement Benefits
Offering retirement benefits is great; but to really benefit your employees, follow the best practices below.
Provide Competitive Matching Contributions
The average employer match is 4.6% of an employee's salary, according to Vanguard's 2022 report. Aim to meet or exceed this to stand out as an employer.
A competitive match not only incentivizes employees to save for their future but also communicates that your company is invested in their long-term well-being. Furthermore, matching contributions can significantly enhance employee retention, as workers are more likely to stay with a company that actively supports their financial goals.
“As of December 2022 and thanks to the SECURE 2.0 Act, your employer can make matching contributions directly to a Roth 401(k), instead of to a separate traditional 401(k) account that was previously required, in addition to your Roth 401(k).” (Investopedia)
Automate Enrollment with Opt-Out Options
Studies show that automatic enrollment increases plan participation rates to 94%. Automation simplifies the process for employees, removing barriers such as decision fatigue or lack of awareness about the importance of retirement savings.
“[With] more plan sponsors offering auto-enrollment, certainly [because of] SECURE 2.0 and new plans being mandated to have auto-enrollment, I think we’re just going to continue to see that trend increase, which is definitely positive.” - Jeff Clark, head of defined contribution research at Vanguard.
Opt-out alternatives ensure that employees still have control over their participation, striking a balance between encouragement and flexibility. This approach also aligns with behavioral economics principles, making it easier for employees to make decisions that benefit their future.
Diversify Your Plan Offerings
Offering both a 401k and a pension plan (or hybrid plans) caters to a wider range of employee preferences. While younger employees may prioritize the flexibility of 401k plans to manage their own investments, older workers might find the stability and predictability of pension plans more appealing.
That way, your company can better meet the diverse needs of a multi-generational workforce, enhancing both satisfaction and loyalty.
Pro tip: Hybrid plans—combining features of both 401ks and pensions—can bridge the gap, providing employees with the benefits of both systems.
Offer Regular Financial Wellness Programs
Employees who feel confident about their financial future are 15% more productive at work. Regular wellness programs can include seminars on budgeting, saving, and investing, as well as one-on-one consultations with financial advisors.
These initiatives empower employees to make informed decisions about their retirement savings, which can reduce financial stress and improve overall job performance. Moreover, offering these programs signals that your company values employees beyond their immediate contributions, fostering trust and engagement.
Regularly Benchmark Your Plans
Compare your offerings against industry standards to ensure competitiveness. Studies show that 81% of companies plan to update benefits to see higher employee satisfaction.
Regular benchmarking allows you to identify gaps in your benefits package and adjust to align with market trends. This process also helps you remain attractive to top talent in a competitive hiring landscape. Reviewing your plans on an annual or biannual basis ensures that your offerings stay relevant and continue to meet the evolving expectations of your workforce.
What Else Can You Do to Strengthen Your Retirement Plan Offering?
Improving your retirement plan offerings is an excellent place to start if you want to stand out in the competitive job market. Beyond standard 401(k) and pension plans, here are some additional strategies to maximize your edge in recruiting and retaining top talent.
Benchmark Your Plan
You should start by understanding how your retirement plan compares to others in your industry. Benchmarking against similar-sized companies helps you identify gaps and adjust accordingly.
For example, if competitors offer immediate eligibility or a more generous matching formula, implementing these features can make your plan more attractive to potential employees. Remember, standing out begins with knowing where you currently rank.
Offer Profit Sharing
Profit-sharing plans allow employees to share in your company's financial success. In strong financial years, you can reward employees with additional contributions, which can motivate them and foster loyalty. Profit-sharing plans can even include age-weighted formulas so that senior employees or company owners can receive a higher portion of the contributions.
Consider Non-Qualified Plans for Leaders
A non-qualified deferred compensation (NQDC) plan is an effective way to attract and retain executives or senior managers. Unlike traditional retirement plans, NQDC plans provide flexibility by exempting you from Employment Retirement Income Security Act (ERISA) regulations. This strategy broadens your compensation package, making it a valuable negotiation tool for leadership hires.
Provide Financial Wellness Programs
Financial stress takes a toll on employees and productivity. Address this by offering financial wellness programs that include literacy education, debt counseling, and one-on-one financial coaching.
Studies show that financially secure employees are more engaged and less likely to leave. You create a healthier, more motivated workforce by providing tools to alleviate stress.
Incorporate Student Loan Matching
Thanks to the Secure Act 2.0, you can now match employees’ 401(k) contributions while they pay off student loans. This offering is a game-changer for 80% of student loan borrowers delaying key life goals due to debt. It bridges the gap between paying down debt and saving for retirement, which demonstrates your commitment to employee well-being.
Add Emergency and Health Savings Accounts
Emergency savings accounts (ESAs) provide employees with a safety net for unexpected expenses funded through payroll deductions. On the other hand, health savings accounts (HSAs) let employees save pre-tax dollars for medical expenses. Both options improve financial stability, give employees peace of mind, and reinforce your position as a supportive employer.
Common Mistakes Companies Make When Offering Retirement Benefits
Providing retirement benefits like 401k and pension plans can enhance employee satisfaction and attract top talent. However, mistakes in implementation can have significant consequences.
Providing retirement benefits like 401k and pension plans can be a game-changer for employee satisfaction and talent acquisition. However, certain mistakes can undermine these efforts and limit the effectiveness of your offerings:
Ignoring Market Trends and Employee Expectations
Retirement planning is evolving. Features like ESG (Environmental, Social, and Governance) investment options and Roth 401k plans are gaining traction among employees who want more control over how their contributions are invested. Companies that fail to update their plans to reflect these preferences risk falling behind competitors who offer these modern options.
Overlooking the Cost of Administrative Complexity
Even the best-designed plans can backfire if they are administratively burdensome. Employers that do not streamline plan management—such as compliance tracking, record-keeping, and employee contributions—can find themselves mired in operational inefficiencies. These issues not only increase costs but can also lead to errors that erode employee trust.
Setting Unrealistic Vesting Schedules
Overly restrictive vesting schedules—such as requiring an employee to remain with the company for several years to fully own employer contributions—can feel punitive. This often backfires, especially in industries where turnover is high. Employees may leave before they’re fully vested, reducing the perceived value of the benefit and diminishing its role as a retention tool.
Neglecting to Provide a Seamless Offboarding Process
When employees leave, they should be able to roll over their retirement benefits easily. Complicated processes for transferring funds or accessing accounts can create frustration and harm the employer's reputation.
“A person nearing retirement must feel like they can approach their manager to discuss options. If they worry that merely mentioning it might get them fired, then you forfeit any possible collaboration that can help both the employee and the company.” - Alicia Garcia, Benefits Pro
Simplifying offboarding for retirement benefits ensures that departing employees leave with a positive impression, which can reflect well on the company as a whole.
Failing to Account for Financial Inequities
Retirement plans that require higher upfront employee contributions might disadvantage lower-income workers, who are already struggling to save. Without provisions like automatic contributions at manageable levels or financial counseling, these workers may avoid participation entirely, leading to inequitable outcomes across the workforce.
Relying on Outdated Plan Features
Failing to modernize features such as investment options, contribution limits, or digital accessibility can make your plan seem irrelevant. Employees expect user-friendly digital tools to manage their accounts, as well as up-to-date investment choices that align with their financial goals. Outdated features can give the impression that the company isn’t invested in employee success.
Attract Top Talent with Confidence
In this article, we discussed the importance of offering 401k and pension plans to attract top talent. We emphasized how these benefits contribute to a company's competitive edge in the job market.
Offering 401k and pension plans boost employee loyalty and retention. These benefits provide financial security and stability, which employees highly value. This enhances your company's overall performance and reputation.
As you consider implementing 401k and pension plans in your organization, remember that these benefits contribute to your company's long-term success. Take the time to evaluate your options and tailor them to meet the needs of both your employees and your business objectives.
If you’ve enjoyed reading this article, feel free to explore more in our other articles or tune into our podcasts for deeper insights.
