Firms beef up retirement benefits to attract and retain employees

As employers grapple with the high number of workers quitting their jobs amid what is being dubbed the "Great Resignation," some plan sponsors are beginning to re-evaluate their retirement plans with a view toward making them more attractive to the workforce.

KPMG LLP, for example, recently announced it will overhaul its 401(k) matching formula — and replace it with something far more generous.

Rather than matching 25% on the first 5% of base pay that employees put into their retirement accounts — for a maximum match of 1.25% — the accounting firm will instead give employees an automatic contribution equal to 6% to 8% of their total eligible earnings — even if employees aren't contributing any money to their accounts at all.

The change takes effect Jan. 1 and replaces the contributions that the company is now making to both the $8.1 billion 401(k) plan and a $3.8 billion pension plan, which will be frozen effective Dec. 31.

"It's a real big differentiator," said Jenny Lisena, a Montvale-N.J.-based partner in charge of KPMG's retirement and wealth strategies, referring to the fact that the firm "no longer requires employees to contribute their own money to receive the firm's money."

"We think it's going to be an attention-getter for attracting and rewarding talent because it focuses on choice and flexibility and lets people be in control of their own money and how they deploy their own cash," Ms. Lisena said.

Other sponsors are looking at everything from eligibility requirements to adding emergency savings accounts and other features to their plans in addition to matching formulas.

"It is definitely something that is being discussed broadly, and it seems like this time is a little different than past times," said David Stinnett, principal and head of Vanguard Group Inc.'s strategic retirement consulting in Malvern, Pa.

Unlike employers' response to labor shortages in the past, employers today are not only looking to increase compensation but are also "focusing on the 401(k) benefit and making enhancements if they can," Mr. Stinnett said.

Many employers are promoting their retirement benefits more aggressively to make sure that employees understand the "generous matching benefits that they've been receiving," he said, noting how a local fast-food restaurant in his neighborhood was highlighting its 401(k) benefits to prospective employees.

Others are enhancing or thinking about enhancing their plans. Some, for example, are making employees immediately eligible for the retirement plan rather than having to wait a period of time before becoming eligible. "They're trying to cover more employees in existing plans than previously to try to attract and retain these workers," Mr. Stinnett said.

Other ideas that employers are entertaining include upping their matches and shortening their vesting schedules. Few are looking to increase their non-elective contributions as KPMG opted to do, Mr. Stinnett said.

Boeing Co., for example, recently announced it would increase its matching contribution for non-union employees in the company's $70 billion 401(k) plan. Beginning Jan. 1, Boeing will match dollar-for-dollar the first 10% of base and incentive pay that non-union employees contribute to their 401(k) accounts. Boeing currently matches 75 cents on the dollar for up to 8% of base pay an employee contributes. The automatic contribution of between 3% to 5% that Boeing now makes, however, will go away.

"We're committed to continuously reviewing opportunities to enhance our benefits that position us as a company where employees want to stay and grow their career," a Boeing spokeswoman said in an email.

In the battle for talent, employers are taking stock of how their retirement benefits hold up against those offered by rivals. Vanguard's Mr. Stinnett, for example, said his team has seen a threefold uptick from 2020 in the number of plan sponsors asking for customized benchmarking of their plans. Vanguard uses benchmarking tools to help sponsors look at aspects of their plan design, such as their vesting schedule and match levels, and compare them against their peers and employers in regions where they're looking to attract employees.

"Through using those benchmarking tools, we can give them a sense of changes they might want to make," Mr. Stinnett said.

No doubt, employers are worried. In a recent survey of 205 retirement plan sponsors, Principal Financial Group found that 81% are concerned about the increased competition for talent and 73% are struggling to find qualified staff to fill open positions.

Nevertheless, employers are in an early "discussion-only" phase and not taking any immediate action on their retirement plans because the focus right now is on open enrollment and getting through the holiday season, said Jeff Cimini, senior vice president of retirement product management at Voya Financial Inc. in Windsor, Conn.

"It's still a little early in terms of specific options or decisions that they make," Mr. Cimini said, referring to plan sponsors.

Mr. Cimini expects that plan sponsors thinking about making changes may start to implement them in the first six months of next year.

Some plan sponsors are having early conversations about adding a profit-sharing component to their 401(k) plans, while others are contemplating lowering the eligibility age to 18 from 21, he said.

Some sponsors are also looking to add benefits not directly tied to their retirement plans, such as emergency savings accounts and health savings accounts, to gain a recruiting edge, according to some record keepers.

"We are seeing more employers adding or enhancing benefits like student debt, emergency savings support, workplace giving programs, parental leave, fertility and family-building benefits and wellness-lifestyle spending accounts,"said Eliza Guilbault, vice president at Fidelity Investments Inc. in Smithfield, R.I.

For some plan sponsors, however, the battle for talent is more about compensation than it is about retirement plans and other benefits, according to some record keepers.

"Much of the immediate retention focus has been on pay and compensation," Fidelity's Ms. Guilbault said, explaining that many plan sponsors are considering adding equity compensation, such as employee stock purchase plans, to their benefit platforms.

Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group in Des Moines, Iowa, also sees pay trumping benefits in the employer war for talent.

Because workers on the lower end of the income scale place greater value on "having more in their pocket today through a paycheck increase" than they do on better benefits, Mr. Reddy said many plan sponsors aren't thinking about making changes to their 401(k) match or plan design.

"I think they're hyperfocused on all the job openings they have and trying to fill them. I think that's where their energy is going for the time being," he said.