Perhaps it’s time to take a philosophical assessment of your company’s retirement plan. Does it exist simply out of a sense of obligation, or because your competitors have one?
Or does your culture support it because of a belief that employees should have something to show for their labor after they have left the company?
If the latter is true, but you still have outdated eligibility policies for participation in the plan, then a reconsideration of those policies may be in order.
Yes, “outdated” is the word. Or so says retirement consultant Rob McCracken, in an article for Pension Consultants Inc.
McCracken notes that the trend these days is to scale back or reduce any barriers to retirement plan entry for employees. Citing figures from the Society for Human Resource Management, he notes that plans offering immediate eligibility have increased from 45 percent of defined contribution plans in 2001 to 76 percent in 2013.
“We’ve also experienced increased trends in participation rates and distributions in tax qualified vehicles, which may be associated with relaxed eligibility standards, and ultimately can help participants become retirement ready,” he says.
McCracken makes the following argument in favor of relaxing or eliminating altogether barriers to retirement plan entry.
Argument No. 1: Help the job-hopper
The author points to data that indicates that most employees switch jobs often, and that 4.6 years is an average tenure these days.
“Given these averages, over a 30-year period, an individual would be losing out on seven-plus years of contributions into various employer-sponsored retirement plans if each employer had an eligibility waiting period of one year.