Despite the pressures of the economic crisis, most U.S. companies continue to view their retirement as a vital part of their workplace relationship with employees, even as they struggle to balance cost and talent management issues, says a new industry study.
A survey of close to 500 HR and benefit executives conducted in February by Towers Perrin found that few companies are dramatically reducing or eliminating current benefit plans. While that’s partly a result of a decade-long focus on plan redesign and cost management, the findings confirm the extent to which most companies are staying the course, at least for the present.
The survey results indicate many companies are using the current crisis to find the right balance between cost reduction and talent management, positioning benefits as part of a more holistic “deal,” with employees — one built on shared responsibility for costs and risks.
While companies appear to be trying to keep their programs as consistent as possible, the survey results did underscore the current mood of trepidation in the workplace, given the financial pressures many people now face. As evidence, between 30 percent and 60 percent of the survey respondents said that their employees were postponing plans to retire, reducing participation in 401(k) plans and increasing hardship withdrawals and loans from the plan. Only 7 percent predicted any uptick in 401(k) participation.
The survey found that employers generally are stepping up efforts to address employee concerns through heightened communications and education, and to position benefits as part of a more holistic total rewards package, or “deal,” with employees.
“It’s encouraging that a majority of employers in this survey do not seem to let current concerns outweigh their long-term commitment to their employees,” said Mike Archer, Towers Perrin’s chief actuary and a principal in the firm’s retirement practice. “That’s a particularly welcome sign for employees at a time when there is so much anxiety about future security. It should have a marked impact on employees’ level of engagement and productivity, both of which are critical elements in helping companies survive and thrive.”
Amid worries about their 2009 performance (56 percent of respondents expect to see revenues decline, in some cases by as much as 20 percent or more), a fair number of respondents see the economic crisis as a catalyst for constructive action. For instance:
— 70 percent are increasing communication to address employee concerns, and more than 57 percent said they were not cutting back on investments in benefit communication or education.
— 53 percent are trying or considering new benefit strategies they would not have considered otherwise.
— 47 percent reported they are taking a more holistic approach to reward management.
The survey results indicate that defined benefit (DB) plan sponsors continue to close their plans to new participants, although at a slower pace than many might have expected. To date, 44 percent have closed their plans to new participants, with only another 3 percent planning to do so in the next 18 months. Of the remainder, 10 percent reported their company was considering the issue, leaving 43 percent indicating they had no such plans. Significantly, more than two-thirds (69 percent) reported they have no intention of modifying their DB plans for current participants.
On the defined contribution (DC) front, fewer than 10 percent of respondents have suspended – or plan to suspend – company contributions to DC plans. Another 19 percent are considering the action, but nearly three-fourths of respondents have no such intentions. As might be expected, given what’s happened to 401(k) account balances, employers are doing more, not less, to educate employees and communicate about DC investment options. Nearly 40 percent of respondents said their companies are making or increasing investments in financial education for employees.
One of the more disturbing findings from the survey is the impact the current environment has had on employee perceptions of their retirement horizons. More than half (59 percent) of respondents said they believed employees planned to postpone retirement in light of the current economic climate. Some 43 percent of respondents reported that employees were increasing loans and hardship withdrawals from DC plans, while 38 percent noted declining overall participation in the plans.
“These trends are serious and a cause for concern,” said Archer. “They suggest that an increasing number of employees may fall far short of their retirement income needs, particularly if they are not participants in a defined benefit plan, do not have other assets and back off from further participation in available defined contribution plans. For employers, the key struggle is finding the appropriate balance between cost and risk — for the company and for employees. How much is too much for either side? What is an effective balance?”
The Benefits in Crisis survey drew responses from 480 HR and benefit executives from a cross-section of midsize and large organizations in the U.S. It was conducted online in February 2009.
Source: Towers Perrin,