Let Me Count the Reasons
Why do employers sponsor retirement plans? Well, it depends.
The rationale for sponsoring a retirement plan can vary widely based on the size of a company as well as the role of the decision-maker. It puts a premium on the need for fundamental fact-finding and underscores the importance of understanding who will make the decision about sponsoring a retirement plan.
Overall, most companies sponsor a retirement plan to improve employee satisfaction and to offer a competitive benefits package, according to the 2016 Winning Combination* study by MassMutual. But how tightly a company embraces those reasons can differ between the different functions, including human resources, finance and leadership.
How well you understand those differences and priorities can make or break a finals presentation for a retirement plan. At the start of the presentation, ask each person representing the plan sponsor to give you his or her top priorities and goals for the plan. Then write each of those goals on a white board or other space where everyone can see them.
During your presentation, make sure you address each of the objectives and priorities, explaining how you, the recordkeeper or both would accomplish the sponsor’s goals. Talk about what resources, programs and staff can be brought to bear to make the retirement plan as effective as possible. Then, check off each priority as you address it and ask if there are any other concerns that you can speak to.
So who from the sponsor cares most about what? MassMutual’s research shows there are differences in priorities on the part of different functional areas.
Company leaders, not surprisingly, are high on employee satisfaction (92 percent). If you have to stand before a large group of people on a regular basis, you don’t want to be looking out at pitchforks and torches. But there is some incongruity coming from the corner office, too.
Leaders are a little less enthusiastic about offering a competitive benefits package (87 percent) than other functions (HR: 92 percent; Finance: 89 percent) but do see more value in attracting and retaining the best talent. Fourth on leaders’ lists was the need to help employees save for retirement. If your employees like you, I guess you want to keep them around.
Meanwhile, HR cares more about the importance of improving employees’ retirement readiness and offering a competitive benefits package. They speak the language of most retirement plan providers.
Decision-makers in a financial role – the chief financial officer, for instance – tend to more readily embrace the tax advantages of offering a retirement plan, the study finds. Tax advantages are especially important for larger firms. Seventy-eight percent of plans with between $25 million and $75 million in assets under management favored tax advantages as compared to 56 percent of sponsors with less than $25 million in assets.
But let’s dig a little deeper. Those favoring tax advantages differ when it comes to who benefits from them: the employer or the employee. And who do they care about more, the employer, right?
Wrong! Finance folks (85 percent) as well as HR (76 percent) and leadership (71 percent) are more likely to line up behind tax advantages for employees than the employer. Believe it or not, every function is less enthusiastic about the tax advantages for their employer, with finance (69 percent), leadership (55 percent) and HR (49 percent) pointing to those benefits as a reason to sponsor a retirement plan.
Anecdotally, there’s also evidence that finance people, CFOs in particular, connect with data that demonstrates the specific long-term value of a retirement plan to their company. That value stems directly from the ability to reduce the higher costs typically associated with mature workers for salaries and healthcare, disability and workers’ compensation insurance. If you can demonstrate the long-term financial benefits of retirement readiness, the CFO is all in. For them, the bottom line is the bottom line.
Overall, the research shows that you can’t assume you understand the reasons or the rationale for why a company chooses to sponsor a retirement savings plan. You need to connect with the company’s decision-makers and ask them specifically why they want to offer a retirement plan and what they see as the specific benefits for their company.
Only then can you truly take a prescriptive approach and offer the right solution. Doing so will help create agreement on one point in particular: you -- as their financial advisor -- are a valuable asset to their company and its employees.
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Thomas Foster Jr. is Assistant Vice President, Strategic Relationships, for Massachusetts Mutual Life Insurance Co. (MassMutual).
*2016 Winning Combination study, https://www.massmutual.com/~/media/files/rs7153_brochure.pdf
This article is for informational purposes only and should not be construed as legal, investment, and/or tax advice. Please consult your own legal counsel and other experts regarding the specific application of the information set forth herein to your own plan and/or circumstances.