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Employee retention is the number one problem facing American companies right now. Called the “Great Resignation,” employee turnover was a more severe issue than ever in 2021, with over 47 million employees quitting their job voluntarily – the highest number recorded by the Bureau of Labor Statistics since it started tracking in 2001.[1] The voluntary resignation rate rose to 15.9% from 11.6% in 2020, with hospitals and healthcare systems seeing the highest rate at 19.8%. [2] People, especially millennials and Gen Z, are moving from job to job faster than ever.
Not only is turnover frustrating for employers, but it is also expensive — costing U.S. businesses more than $700 billion in 2021. The price of just one employee resignation can vary greatly depending on the job and industry, but on average, it adds up to 33% of the job’s base salary.[3]
The power of good retirement plans
Employers frequently underestimate the importance of excellent employee benefits, especially retirement, even for younger people. As more Americans have grown aware of the retirement crisis facing Baby Boomers and Gen X, the younger generations are preparing for the future. In fact, insufficient benefits packages were a significant factor for more than 40% of people who left a job in 2021.[4] Gen Z workers, now in their early and mid-20s, are thinking ahead more than past generations, with 30% surveyed saying it’s a priority and 67% with access to a retirement plan using it.[5] Considering how few Americans are saving enough money for retirement, offering substantial retirement benefits is a logical way to recruit and retain employees.
While many corporations (i.e., Tesla, KPMG and Meta) have enhanced their defined contribution (DC) plans to help retain workers, DC plans only provide approximately 24% of the benefits of a DB plan. [6][7] To stand out from the crowd as an employer of choice, more private sector companies are considering reviving a blast from the past — defined benefit (DB) plans. Pension plans are a proven way to incentivize employees to stick around. According to a study by the Center for Retirement Research at Boston College, workers with a defined benefit plan are more likely to stay with an employer for at least 10 years. Companies looking for affordable and equitable ways to offer guaranteed lifetime income are increasingly turning to cash balance plans. With an attractive risk profile, like a DC program, cash balance plans now account for 52% of all DB plans — with nearly 13K new plans implemented over the past five years.
Why cash balance plans are effective
Cash balance plans combine the best features of DB and DC plans, creating a sustainable, hybrid retirement plan. They allow risk to be shared appropriately between employers and employees through a DB plan.
However, not all cash balance plans are identical. In December 2022, the Secure 2.0 Act paved the way for businesses to implement market-based cash balance plans. Why is a market-based rate attractive to employers? Unlike a fixed-rate cash balance plan or traditional DB plans, annual contributions don’t fluctuate year to year. The yearly expenses stay very close to the budget, like a matching DC/401(k) plan.
As more businesses look for ways to become an employer of choice in a competitive job market, stay ahead of the curve and contact us today to learn more about how this retirement program could work for you. An expert will walk you through all the details and how we can customize a plan for your organization.