How many of your employees are on track to retire successfully?
It’s a question many manufacturing and distribution company leaders are not able to answer. And even if they can, the answer may not be one they are eager to reveal. But as manufacturers and distributors seek to recruit and retain talented employees for the plant floor, it’s a question they should be able to answer proudly.
While almost every company offers a retirement plan, too many companies take a passive approach to plan management and fail to communicate plan features and options to employees. As a result, many employees don’t participate in the plan or, if they do, they don’t take advantage of all its features and miss out on retirement savings guidance. And then the company loses a potential recruitment and retention tool.
Our team at professional services firm Sikich recently worked with Plymouth, Minnesota-based United Hardware Distributing Company – a wholesale hardware distributor that provides products, retail programs and support services to independent retailers – to assist with plan education, implement design changes to its retirement plan offering and enhance plan communication with employees. These efforts resulted in an increase of employee participation in the plan from 68 percent to more than 90 percent and an increase in average deferrals from 5.1% to 8.14% in three years.
United Hardware offers a model example of how manufacturers and distributors can incorporate plan design changes and employee engagement services in their retirement plans to turn them into a talent recruitment tool moving forward.
Put your retirement plan under the microscope
Manufacturers and distributors often have lean leadership teams who must spend most of their time and energy focusing on fine-tuning business operations and generating revenue. However, company leaders need to make time for the retirement plan. A key first step a company can take is to form a retirement plan committee staffed with members of the human resource team, finance team and company leadership. This committee oversees all decisions related to the retirement plan, manages relationships with vendors, and sets goals and measures progress against those goals.
Once a committee is in place, a company needs to put its plan through an independent review, which will assess plan structure, investments and fees. While a company may have a strong relationship with the vendor that manages the retirement plan, an independent review removes any bias from the process, as it will not favor any vendor’s proprietary investment funds.
While an independent review is necessary to ensure the company has an optimal plan, it’s also a crucial protection against costly litigation. The Department of Labor requires companies to conduct an independent review of their retirement plans every few years. With litigation related to retirement plans on the rise today, it’s important that manufacturers and distributors prioritize this step of the process.
Improve plan structure and educate employees
To increase participation in its retirement plan, United Hardware put in place auto-enrollment for new employees so all new hires would be enrolled in the retirement plan unless they proactively opted out. Coupled with active communication on the benefits of the plan, this helped boost enrollment, and only 9 percent of new hires have opted out over the past three years
Companies can also consider automatic increases in deferral rates (or the amount employees save in their retirement accounts from each paycheck). United Hardware instituted optional automatic increases to help interested employees easily increase their deferrals over time. Average deferrals are now more than 8%, much higher than the company’s 6% match rate.
A hallmark of the best retirement plans is simplicity. Companies must offer employees an easy-to-use platform with simple investment options that employees can simply “turn on” and let work for them. Target date funds, which adjust the investment mix as an employee ages, are great options that require little tinkering from employees. Further, companies could offer their employees pre-packaged investment options based on risk tolerance. Of course, employees should be given the option to choose a custom portfolio of investment funds, if they’d like. But for most, the risk-based investment packages will be sufficient and make their investment decisions easier.
It’s important to note that all these efforts to increase participation can be wasted if a company does little to communicate the features of the plan to employees. If a company doesn’t communicate with employees effectively, the plan will be nothing more than another line item in a benefits pamphlet. Employees won’t feel they benefit from the plan and many will miss valuable financial gains.
To guard against this at United Hardware, we hold education sessions for their 280 employees every six months. Held during work hours, these mandatory meetings allow our advisers to educate the entire staff on key topics. Instead of trying to cover a laundry list of topics at each meeting, we focus on a single topic in each session. For example, “how much employees should save” or “how to know if you’re on track to retire.” Then, we offer one-on-one meetings with individual employees so they can ask questions related to their personal situations.
In addition to meetings, companies should also consider putting educational posters in break rooms, sending companywide emails and including informational materials in paycheck envelopes to further educate employees.
Help employees achieve a secure financial future
Retirement plans are personal. They can be the difference between early retirement from a physically demanding manufacturing job and financial struggles late in life. So, manufacturers and distributors have a responsibility to help their employees prepare for a secure financial future. Companies that fail to prioritize their retirement plans risk not only setting their employees back but also incurring increased costs associated with training and recruitment as they suffer higher turnover.
In a time of unprecedented workforce challenges, it’s crucial that manufacturing and distribution leaders follow United Hardware’s example and make the retirement plan a corporate priority. Those who do will find themselves with a valuable recruitment and retention tool.