The Labor Crunch and Its Impact on Retirement Plans

With the Great Resignation in full swing, businesses are experiencing a labor crunch. I recently chatted with Mike Dullaghan, AIF of Putnam Investments to get his thoughts about how this will affect retirement plans. I’ll also highlight a few things we’re seeing as well.

The Great Resignation Is Not an Urban Myth

According to Mike, workers are more mobile than ever, and are more willing than ever to change jobs. We’re also seeing an increase in retirements over the past couple of years, and the share of retirees that end up rejoining the labor force has decreased (source); these two factors are also putting a strain on HR departments. There’s a real economic phenomenon going on here, folks!

The unemployment rate is back to where it was pre-pandemic, but the labor force participation rate is not. The gap between the number of open jobs and the number of people actively looking for work is pretty wide (about 11 million vs. 6 million, respectively). This raises the stakes when it comes to recruiting and retaining talent.

This parallels the local housing market - usually there’s about a 6-month supply of houses; now it’s a 1-month supply. As with the labor crunch, it’s a supply and demand mismatch issue - there’s a huge demand for labor right now, but not enough supply. 

Recruiting and Retention and Retirement Plans

Many business owners were busy during the pandemic just trying to stay afloat so reviewing their 401(k) wasn’t a priority. Now, however, it may be time to take a closer look and realize that it may be one of their best retention tools. You might consider gathering some statistics on how well your 401(k) enables employees to retire successfully, and bragging about it! 

It’s a big responsibility to offer a retirement plan - is it worth it? That’s why calculating the success rate of your plan and letting your current (and future) employees know can help with your recruiting efforts, says Mike. 

There’s a saying: “What gets measured get managed.” Measuring and monitoring the success score of your plan, and tracking it over time, is key for all concerned, from the CFO to HR to employees.

Another thing to remember is that retirees will have other sources of income beside the corporate retirement plan - there’s also Social Security and outside assets to consider when determining how much money one can expect to get monthly after retirement. Recordkeepers can aggregate data input into a participant’s webpage and can calculate at an individual participant level what monthly income they can expect to receive. 

Mike ended with 3 questions business leaders should ask themselves:

1. How is recruiting and retention going in light of the Great Resignation?

2. How much and how well are we talking about our retirement plan?

3. How well are we measuring and monitoring the plan’s success score?

Benefits are a huge reason why employees stick around; recrafting and reframing how you talk about your retirement plan can ultimately bolster your recruiting and retention efforts. 

Let’s talk more about that.

Benefits are only viewed as valuable when they are viewed as relevant by an employee. Pregnancy benefits from medical insurance aren’t important or valuable – until they are. Student loan or educational benefits, disability insurance, life insurance, financial wellness… none of these will be considered valuable unless employees understand how they fit into their individual financial picture, and are relevant to their situation. For example, a 23 year old on their parents’ medical insurance will not care about your medical insurance offering for another 3 years. Your rich medical insurance plan should not be a focus of your recruitment conversations for that person/segment!

Today I gave a presentation on Financial Literacy for Retirement. Sure, it outlined how to approach planning for retirement and what to consider in a very edu-taining way, yadda yadda. But the real takeaways for these employees, all under the age of 40, were:

1. The employer has a student loan assistance program! 

2. Automatic enrollment is your friend: the employer cares enough to nudge you on the right track to get to retirement

3. The match is glorious and much better than the closest competitor. (It is. It’s 10%.)

I know this because I asked, “What are you taking away from this today?” And those were the answers!

Mike’s conversation above really only works to demonstrate one facet of company culture – that the employer cares if employees can get to retirement – but the concept applies across the board. Your retention and recruiting efforts should be situational and tailored to who you’re speaking to, and benefits fit into that conversation based on what an employee finds valuable and relevant to them. 

LET ME BE CLEAR: You will likely always struggle to get your employees’ attention on these issues. But they feed directly into your retention strategy.

Let’s talk best practices now. When you are crafting your benefits enrollment, are you talking about how all the benefits fit together? Are you giving examples via narratives that employees in each age range or life stage can relate to? Here’s how that can look: 

Let’s say you’re single, have student loans, and this is your first job.  People in their 20s generally are doing/using/thinking about XXX. 

Here we have Eager Emily who signs up for 6% right away. Then there’s Procrastinating Pete, who waits 10 years and signs up at 6%. Stubborn Susan signs up at 3%. Look at the difference in their outcomes…

Please don’t cram every single vendor into a meeting or benefits fair with no framework for digesting the information. Employees simply will not get the full picture and they won’t be able to appreciate what you’ve constructed. Speaking from experience, while those vendors might be siloed, we’re more than willing to work together to communicate around a central theme or coordinate presentations if you give us the opportunity (mandate) to do so. An example here is having the retirement advisor and the healthcare broker tagteam to explain how the HSA works. 

We have a bunch more time tested techniques if you need more! Still struggling through your retention and/or your benefits communication plan? Reach out to us!