What was once the mainstay of middle-class retirement — a steady, consistent, dependable, guaranteed monthly pension payment is largely gone.
Fundamental changes in the structure of our economy, combined with increased healthcare costs and lack of saving, have created a financial trap for millions of American workers heading into retirement. The result is a retirement crisis that’s rapidly reaching hardship levels.
Not coincidentally, older Americans increasingly continue to work longer than their ancestors.
More than 20% of the workforce in the U.S. is 55 or older, an historic high, and that percentage is expected to increase. And, 74% of Americans now say they plan to work past traditional retirement age.
Moreover, 66% of millennials (people currently aged 22-37) report that they have nothing saved for retirement, due largely to either the absence of retirement offerings or retirement plan eligibility requirements that exclude part-time workers and recent hires. (Over 94% of millennials who are eligible for a workplace retirement plan are saving — about the same participation rate as with previous generations.)
How we got here is irrelevant. The focus must be on what employers can do who already are confronting a variety of pressures in meeting customer demands for the best product/service at the lowest price, while trying to attract, retain, and motivate employees.
Alter the Focus — Offerings
Continuing the status-quo and maintaining a one-size-fits-all mentality for all employees will only continue to create additional problems in the future.
Recognizing that employers can only do so much with the pressures on providing competitive benefits (e.g., medical/Rx, primarily) and pay. However, with limited resources, the issue is that there can be a different approach to slicing up the pie.
First, employers must develop a total compensation and benefits philosophy that creates a strategic plan that in turn mirrors the strategic plan for the company. This creates a blue print for making decisions and can be relied upon to answer the question of why.
Armed with this information, an employer can then make decisions around this approach. For example, if part of the philosophy is to target base compensation to the 50th percentile of the market, it does not mean that every position within the company has to be targeted at this level. The idea being to free up resources that can be allocated to other areas within total compensation.
The next concept is to begin to tailor total compensation along generational lines. Under this concept, total compensation packages can be developed in which employees have choices regarding an array of offerings.
For example, one of the packages would be designed to provide a larger retirement benefit offering (e.g., higher match or higher company contribution tied to service and/or age and service), in exchange for differing levels of pay or other benefits. As such, as employees progress in their careers, they can shift to a more focused approach that meets their needs, while still being affordable.
Employers can then focus on other effective ways to approach this entire concept, with paid-time off plans, a shift toward voluntary benefit offerings, variable compensation strategies, and other approaches that move away from a traditional model.
Alter the Focus – Move from Short-Term Fixes to Long-Term Focus
Each year companies embark on the same process of reviewing their healthcare offerings: constant path of vendor review, changes in deductibles, co-payments, employee co-sharing. It would be nice to get off of this never-ending merry-go-round that nobody likes – especially your employees. How much more cost-shifting can actually occur?
The emphasis is not to put this on auto-pilot and stop managing, as one would never do this with any line of business. Understanding the focus and priority of what philosophy an employer wants to follow will help with resource allocation. An employer cannot be all things to all employees. They can create a platform for employees to take advantage of their market presence to facilitate the process of purchasing benefits on a cost-effective basis. As such, an employer establishes a total pool of funds to be allocated to all of the areas that it deems as a priorities.
This approach will avoid making short-sighted, quick decisions with little or no return for the future.
Alter the Focus - Be Proactive Not Reactive
Pay equity (both internal and external) is a significant issue facing employers. Why wait until a new law passes or challenges to existing policies arise? This issue will not go away; so it is better to proactively address it and implement changes to fix it, if- and as-needed. This will provide you with an orderly move from status-quo to a new structure that is within budget constraints and focused on the areas and positions that drive the most value.
Alter the Focus – Create Different Employment Opportunities
Ask: Will my operations and business structure support creating different options for segments of a work-force? Is it possible for senior employees to work part-time or on some other flexible time basis, in order to transition into retirement and still contribute? Can they move to be full-time trainers or serve as mentors to new hires? This would alleviate the need for attempts to force employees out as they get older, while not blocking opportunities for new hires or other experienced personnel within your company. This can be done in combination with the total compensation approach noted above.
Alter the Focus – Educate and Communicate
The focus is to expand beyond traditional communications, and it should create awareness. This relates to the total compensation and benefits philosophy and the company’s focus and direction with compensation and benefits. If we only communicate the changes and what employees must do to enroll, and what forms to sign and what rules they need to follow, can we expect them to understand our intentions? If everything is top-secret and confidential, employees will be left on their own to make their own assumptions. Do we really want to run our business that way?
The current crisis regarding retirement did not just spring up overnight. Warning signs appeared. How are we going to react to the current signs?
Elliot Dinkin is president and CEO at Cowden Associates, Inc., specializing in helping corporate clients find the best solutions, both for the enterprise and its employees, with regard to compensation, healthcare benefits, retirement and pension issues, and Taft-Hartley fund consulting.
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