A top-notch retirement plan is critical to attracting and retaining A-level talent. So how good is your plan?
Here are some stats from Vanguard and the Profit Sharing/401k Council of America (PSCA) that’ll give you some benchmarks to judge where you stand:
Company matches
How much do you contribute to employees’ retirement next eggs? How much do employees have to contribute themselves to maximize your contribution?
According to Vanguard’s analysis of 2,200 retirement plans that have 3.2 million participants, the median employer 401(k) contribution last year was 3% of an employee’s pay.
In addition, the median plan required employees to save 6% of their pay to maximize the company’s match.
If your company’s contribution numbers are similar or better, chances are you’ve got a solid plan.
Waiting periods
The earlier you let people participate — and start collecting the match — in your 401(k) plan, the more appealing it’ll be. Yet only half (51%) of employers allow workers to start contributing as soon as they start collecting paychecks, revealed Vanguard’s study.
One-quarter (25%) of all companies require employees to be employed between one and three months before participation is allowed. Another 15% require employees to be employed for at least one year. Most financial experts say that’s too long.
On top of all that, only 40% of companies provide an immediate match. And 28% require an employee to spend a full year at the company in order to receive the match.
Nervous about going all in and allowing new hires to participate in your 401(k) plan — and collect the company match — right away? Consider the middle path: allowing them to participate immediately, but waiting six to 12 months before being eligible for any company match.
Vesting
Once again, the sooner employees become fully vested in your plan and are eligible to keep what’s been deposited in their accounts, the more attractive your plan will be.
According to a 2008 PSCA survey of 908 company plans, 37% of employers offer immediate vesting.
But many companies still opt for a graduated vesting schedule that allows an employee to keep a certain percentage of the company’s match based on number of years of service.
Most financial experts say a strong plan fully vests employees within eight years.
Investment options
In 2009, the average plan offered 25 investment options, from equities, bond funds, money market options and so on, found Vanguard. However, most people used three or fewer of those options.
Lesson: All you need are a handfull of options. The most common include low-cost index funds and low-maintenance target-date/lifecycle funds.
