Like many depression era born workers, my father worked at the same company for nearly 30 year. Companies offered great incentives to stay through pleasant work environments, good benefits and pension plans.
Young workers today are not likely to spend their career at one or two companies. In a recent report by the Bureau of Labor statistics, workers age 18 to 48 can expect to have more than 11 jobs on average in their lifetimes. [1] While there is nothing inherently wrong with changing jobs, some employers are making it difficult for the new generation of employees to stay on track for retirement saving.
Many employers have not changed their retirement plan eligibility, matching requirements and vesting schedules to address this ever changing and more mobile workforce. The Government Accountability Office (GAO) found that many companies still require a one year waiting period for eligibility. Even companies that permit a more liberal eligibility period may make new employees wait a year to be eligible for the company’s matching contributions. Vesting schedules can also pose a problem. They can be as lengthy as six years before an employee is entitled to 100% of the employer contributions.[2]
While this may seem insignificant for someone who has a working career of 40 years or more, it can prove to have a detrimental effect on retirement savings for those who change jobs 11 times. The GAO estimated that losing one year of eligibility 11 times could result in a loss of $411,439 over the course of one’s working career. [2]
Employers offering company-sponsored retirement plans should consult with their financial advisors to consider shortening or eliminating stringent eligibility and vesting requirements. Careful thought should be given to the costs associated with these changes and any potential impact it could have on plan discrimination testing and compliance. However, offering more generous plan features may help companies attract and retain a young and talented workforce while making it easier for these workers to save the most for retirement.
For more information about how plan design changes may improve your retirement plan savings success, please contact Olson Wealth Group at (952) 835-1797.
By Gina Buchholz
LPL Registered Administrative Associate
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC
1 Bureau of Labor: https://www.bls.gov/news.release/pdf/nlsoy.pdf
2 Government Accountability Office GAO-17-69: Published: Oct 21, 2016. Publicly Released: Nov 21, 2016.