What An Ineffective Retirement Plan Really Costs Your Company

You know it’s important to have a strong retirement plan for your company. Still, when it comes down to it: If you have an ineffective retirement plan, what’s the real cost to your company if employees can’t retire on time?

It might seem easy to view your company’s retirement plan as an independent entity. In truth, there’s a much larger domino effect that occurs when people either don’t retire on time or leave the company before retirement.

There are long-term implications for salaries you pay out, insurance costs, the expense of replacing employees due to turnover and more.

All of which can relate back to an ineffective retirement plan.

As your Chief Retirement Officer, I’d like to break down what these costs can mean for your company in actual dollars with a very real example.

 

The Dollars A Retirement Plan Can Leave On The Table

Let’s say that you have 500 employees.

150 of those employees are over the age of 55.

Now, this is typically the point where you’d expect us to write about the fear of them retiring and all the knowledge that potentially goes out the door with them.

No. What you should be afraid of is the fact that they can’t retire on time.

In a recent survey by the Employee Benefit Research Institute (EBRI), 49% of employees responded that they were not confident they could not retire on time due to inadequate savings. That’s 73 employees.

Now let’s factor in the average increase to insurance premiums, which comes to an additional $7,200 per employee according to a recent PlanSponsor study.

Therefore, when 73 employees can’t retire on time and their insurance premiums are raised, in this scenario your retirement plan will wind up costing your company $525,600.

Let’s say that number one more time for emphasis:
$525,600.

This year. Not over time.

 

There’s More: Let’s Talk About Your Younger Employees.

Under the same example, we’ll say you have another 150 employees between the ages of 35 and 49 years old. It’s safe to say that, for many of them, career advancement is one of their highest goals. Should they not be able to advance in the organization, they’ll explore other career options. How many of them? Based on a recent study by Mercer, figure on 39% among this younger bracket or 58 employees who will leave the company if they don’t achieve advancement.

If we assume an average employee salary of $50,000 and the typical turnover cost for replacement is 20% of that salary, we’re left with a $10,000 turnover cost per employee that leaves the company.

That’s $580,000 in costs for 58 employees who leave the company. This year.

 

Bringing It All Home

Let’s review:

·      $525,600 for 73 employees who can’t retire on time

·      $580,000 for 58 employees who leave the company

That’s $1,105,600 in costs for a plan that didn’t allow employees to retire on time, when they wanted to. In one year.

Note that we didn’t include vacation days, sick days, costs due to loss of productivity and more.

 

What This Means For You

Yes, I know the size of company and number of employees in certain age categories within your organization may be different – but don’t be fooled. The same principles very much apply.

If your retirement plan doesn’t enable employees over 55 years old to retire on time because they have insufficient savings, that’s going to lead to additional costs. If employees leave the company due to lack of upward mobility, there’s going to be an accompanying turnover cost.

It’s why designing a strong, competitive retirement plan for your company is so imperative. Let’s take a proactive approach to keeping your costs under control today with a retirement plan that works harder for your people and your bottom line. Talk to your Chief Retirement Officer at Fiduciary Financial Partners at 630.780.1534 today.

 

Chief Retirement Officer Nick Economos shares why your retirement planning should include the days beyond your first day of retirement.

Nick Economos, CRPS is a dedicated independent Financial Advisor and Chief Retirement Officer at Fiduciary Financial Partners. He has a wealth of expertise in designing qualified retirement plans and participant education programs.

Fiduciary Financial Partners, LLC is a Registered Investment Adviser. This blog is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Fiduciary Financial Partners, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Fiduciary Financial Partners, LLC unless a client service agreement is in place. 

Source: (“Inside Employees’ Minds: The Transforming Employment Experience”, Mercer, 2015)
Source: EBRI 2013 Retirement Confidence Survey

 

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1 comment on “What An Ineffective Retirement Plan Really Costs Your Company”

  1. Rick Chouteau Reply

    Great message Nick. Thank you for sharing. I’d welcome a better understanding of what, when and how employers can proactively manage this benefit for the benefit of employees and the business.

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