Tag Archive: employee_satisfaction

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?By Sherron Lumley.

Whether a distant dream or just around the bend, retirement benefits hold significant sway with employees making decisions about where to work and for how long. In fact, a 2011 Mercer What’s Working survey of 30,000 workers found that, among American and Canadian employees, retirement plans placed second only to base pay among the most important employee value proposition elements.

Despite this emphasis, modern-day employees are notoriously poor at following through with retirement savings. Jack VanDerhei, research director of the Employee Benefit Research Institute (EBRI) in Washington D.C. notes, “Only 13 percent of workers now say they’re very confident about retirement,” an all-time low in 21 years of the institute’s Retirement Confidence Survey. What’s more, well over a quarter—29 percent—of workers surveyed said they have savings of less than $1,000.

Still, the expense and administrative burden often appear unaffordable to small business owners. Yet, these tangible costs should be weighed against the intangible benefits that drive employee satisfaction and performance. For example, Met Life’s 9th Annual Study of Employee Benefit Trends found a strong correlation between satisfaction with retirement benefits and job loyalty. In that survey, more than three out of four employees who were happy with their employer’s retirement plan also reported being satisfied with their job.

PQ_RetireBenefits.jpg“We provide medical and retirement benefits, though we are not obligated to, in order to attract and retain good employees,” explains Jodi Teti, small business owner of Blueprint LSAT Preparation, headquartered in Los Angeles, California. Small business owners like Teti say they recognize that to stay competitive and desirable, it’s time to revisit their employees’ retirement benefits. Below, three retirement specialists contribute their insights about the types of retirement benefits that are most desirable to small business employees today.

What employees want most: matching contributions, risk choices, and quick results

“Adequate investment choices and reasonable investment returns for an appropriate level of risk are important aspects employees want in their plans,” says Wes Rommerskirchen of Benefit Plans Plus, LLC, in St. Louis, Missouri. “Employees also look for a healthy employer contribution to assist them in reaching their retirement goals,” he says.

Peter Macaluso, Vice President of FM International Services in Melville, New York, concurs. When it comes to employee satisfaction and retirement benefits, he finds from his experience that “employer contributions affect employee satisfaction the most.”

What does this look like for a small business?

“Initially, we offered a scaled vesting period,” says Teti, whose company originally planned to match 100-percent of contributions for employees after six years of employment. “However, in today’s fluid employment environment, we found that employees simply weren’t contributing under that rubric,” she says.

To counter this trend, her company changed its policy so that employees could realize their benefits more quickly. “After an employee’s first year of employment, we match their retirement contribution up to three percent; we’re 100 percent vested after the initial year,” she says, adding, “the total number of contributions tripled since we instituted the new policy.”

Traditional 401(k) and profit sharing

With a 401(k) plan, employees contribute part of their pay into a plan sponsored by their employer. Many 401(k) plans provide for employer matching and profit sharing, which are employer contributions not taxed by the federal dovernment or by most state governments until distributed. The annual employer contribution is discretionary.

FM International offers its employees a three-percent profit-sharing contribution, which is what they recommend to their customers and clients. Profit sharing permits employers to make large contributions for employees, up to the lesser amount of 100 percent of compensation or $49,000. Employers can deduct amounts that do not exceed 25 percent of aggregate compensation for all participants. If offered, profit sharing must include all employees at least 21 years of age who worked at least 1,000 hours in a previous year.

Visit the Department of Labor’s website, Choosing a Retirement Solution for Your Small Business for more information.

Offer automatic enrollment and target-date funds

Recently hired participants in 401(k) plans, particularly those under 30, are more likely to want target-date funds (TDFs), according to an analysis by EBRI. TDFs are usually mutual funds that have a portfolio mix that becomes more conservative as retirement approaches. Small business owners should consider plans that offer TDFs for workers who want more control about the risk and return of their retirement investment portfolio. Risk-averse or conservative plans find a lower yield acceptable, whereas more risk is required when pursuing a higher yield.

The Pension Protection Act of 2006 contained provisions designed to encourage 401(k) plan sponsors to automatically enroll their workers in the plan to boost retirement savings and TDFs are often used as a default investment for workers who are auto-enrolled.

Adding a cash balance plan – the best of both worlds?

Although still quite popular in the public sector, the old-fashioned pension (or standard defined benefit) plan is out of reach for many small business owners and has been on the decline for three decades in the private sector, according to EBRI. However, cash balance plans are hybrid plans that combine some aspects of a traditional pension plan with those of a defined contribution plan (401(k)/profit sharing).

“Business owners that have the cash flows to support an additional employer contribution may want to consider installing a cash balance plan alongside their existing 401(k)/profit sharing plan,” says Rommerskirchen. “Using a cash balance plan in conjunction with their properly-designed 40(1)k/profit sharing plan could allow the business owner to contribute substantially more towards retirement than just a traditional 401(k) plan would allow,” he adds.

A cash balance plan defines the promised benefit in terms of a stated account balance, yet fluctuations in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. Another advantage: Benefits of cash balance plans are protected by federal insurance provided through the Pension Benefit Guaranty Corporation.

Simplified Employee Pension (SEP), Payroll Deduction IRA or the simple IRA plan

Many small businesses that want to help their employees with retirement turn to Individual Retirement Accounts (IRAs), such as the Simplified Employee Pension (SEP). With a SEP, employers set up an Individual Retirement Account (IRA) for themselves and each employee, with the employer contributing the same percentage of pay for each employee, up to 25 percent of their salary (or $49,000, whichever is less).

The Simple IRA plan allows contributions by both the employer and the employee, whereas the Payroll Deduction IRA is funded by employee contributions without participation from the employer.

Providing retirement and investment education opportunities for employees

Year after year, employees surveyed by EBRI in the Retirement Confidence Survey continue to rank private employers as their most trusted institution, positioning small business owners in the role of guiding and providing for their own and their employees’ retirement savings.

“As far as sweetening the benefits, it is quite difficult for micro-companies and small businesses under 200 employees,” says Marcia Mantell, President of Mantell Retirement Consulting in Needham, Massachusetts. However, there are other things employers can do to help their employees prepare for retirement, she explains.

For companies who want to help their employees right now, but who aren’t yet ready financially to add employer contributions to a retirement plan, Mantell suggests creating non-monetary benefits for employees. Educational opportunities such as lunch-and-learn or hosted seminars about investing for retirement and retirement readiness, combined with in-house training for using online retirement preparation tools, will help employees gain a realistic view of retirement financial needs.

Don’t go it alone

“One of the most common areas overlooked in a retirement plan is the selection of an appropriate investment professional to advise the business owner,” says Rommerskirchen. With many small business owners wearing multiple hats, it’s difficult to stay on top of retirement benefit changes. Therefore it’s important to know exactly what services the financial advisor is going to provide for the plan, and how often you will meet with the financial advisor to review issues. You’ll also want to know how often the plan’s financial advisor will meet with your employees and how much experience he or she has, Rommerskirchenk recommends.

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?

The Pension Protection Act of 2006 contained provisions designed to encourage 401(k) plan sponsors to automatically enroll their workers in the plan to boost retirement savings and TDFs are often used as a default investment for workers who are auto-enrolled.

Adding a cash balance plan – the best of both worlds?

Although still quite popular in the public sector, the old-fashioned pension (or standard defined benefit) plan is out of reach for many small business owners and has been on the decline for three decades in the private sector, according to EBRI. However, cash balance plans are hybrid plans that combine some aspects of a traditional pension plan with those of a defined contribution plan (401(k)/profit sharing).

“Business owners that have the cash flows to support an additional employer contribution may want to consider installing a cash balance plan alongside their existing 401(k)/profit sharing plan,” says Rommerskirchen. “Using a cash balance plan in conjunction with their properly-designed 40(1)k/profit sharing plan could allow the business owner to contribute substantially more towards retirement than just a traditional 401(k) plan would allow,” he adds.

A cash balance plan defines the promised benefit in terms of a stated account balance, yet fluctuations in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. Another advantage: Benefits of cash balance plans are protected by federal insurance provided through the Pension Benefit Guaranty Corporation.

Simplified Employee Pension (SEP), Payroll Deduction IRA or the simple IRA plan

Many small businesses that want to help their employees with retirement turn to Individual Retirement Accounts (IRAs), such as the Simplified Employee Pension (SEP). With a SEP, employers set up an Individual Retirement Account (IRA) for themselves and each employee, with the employer contributing the same percentage of pay for each employee, up to 25 percent of their salary (or $49,000, whichever is less).

The Simple IRA plan allows contributions by both the employer and the employee, whereas the Payroll Deduction IRA is funded by employee contributions without participation from the employer.

Providing retirement and investment education opportunities for employees

Year after year, employees surveyed by EBRI in the Retirement Confidence Survey continue to rank private employers as their most trusted institution, positioning small business owners in the role of guiding and providing for their own and their employees’ retirement savings.

“As far as sweetening the benefits, it is quite difficult for micro-companies and small businesses under 200 employees,” says Marcia Mantell, President of Mantell Retirement Consulting in Needham, Massachusetts. However, there are other things employers can do to help their employees prepare for retirement, she explains.

For companies who want to help their employees right now, but who aren’t yet ready financially to add employer contributions to a retirement plan, Mantell suggests creating non-monetary benefits for employees. Educational opportunities such as lunch-and-learn or hosted seminars about investing for retirement and retirement readiness, combined with in-house training for using online retirement preparation tools, will help employees gain a realistic view of retirement financial needs.

Don’t go it alone

“One of the most common areas overlooked in a retirement plan is the selection of an appropriate investment professional to advise the business owner,” says Rommerskirchen. With many small business owners wearing multiple hats, it’s difficult to stay on top of retirement benefit changes. Therefore it’s important to know exactly what services the financial advisor is going to provide for the plan, and how often you will meet with the financial advisor to review issues. You’ll also want to know how often the plan’s financial advisor will meet with your employees and how much experience he or she has, Rommerskirchenk recommends.

Feedback Loophole: Are Formal Employee Evaluations Worth the Effort?

businessMany small businesses forego formal annual employee evaluations. But, you should think twice.

By Sherron Lumley.

For many small business owners, employee reviews rarely get a second thought, and when they do they all too often fall into one of two versions—“Way to go!” or “What were you thinking?” For some, their reticence to formal reviews involves the time required. For others, it’s the potential for confrontation and an uncomfortable employer-employee relationship. And then some believe they’ve already identified their top-quality and sub-standard performers, so why bother? However, the reasons for doing a formal year-end evaluation outweigh the drawbacks.

Performance management is the way a small business owner takes his or her goals from strategy to reality by communicating with employees. One of the most important elements of this is the annual employee evaluation. It’s a vital opportunity for feedback that promotes better teamwork by motivating and encouraging employees and offers insight for improving the business. Put simply, it aligns your day-to-day operations with the larger goals your company aims to achieve.

 

“Employees always want to know what management thinks of their performance,” says Harvey Baron, founder of Remantech, a custom manufacturing technology company in the Pacific Northwest. “It also lets the employer know why some departments are doing well and why others are not.”

Callout.pngHere is a look at three of the key objectives of the formal year-end review process:  better outcomes through two-way feedback, increased employee satisfaction and retention, and documentation of employee performance and achievements to support compensation decisions and for legal purposes.

Improving employee performance through two-way communication

“If the criticism, if any, is constructive there should be a marked improvement in the employee’s attitude and work,” says Baron. “Sometimes an employee doesn’t even know everything that’s expected of them,” he says, noting that employee evaluations are valuable because they establish measurable goals for the employees and provide an opportunity to review the job description.

And to really make the most of it, Baron recommends thinking of the review process as a two-way street.  “When I allowed my folks to also evaluate their immediate supervisor, I was able to get a more complete picture of the employees’ performance,” he says.

Today, the big trends in evaluating employees involve comprehensive performance management and two-way communication, building commitment, and enthusiasm. It’s a way to decrease turnover, motivate self-improvement and develop trust, says Barry Silverstein in his best practices book, Evaluating Performance.

 

Increasing employee satisfaction and retention

BayView Building Maintenance employs over 80 part-time and full-time employees who provide janitorial and building services to high security commercial office and medical facilities in Oregon and Washington. The company’s high rate of employee retention is a selling feature to their security-sensitive clients, who count on seeing the same familiar service staff year-round. The employee performance evaluation process contributes to Bay View’s success by promoting a positive and rewarding environment where attractive compensation is directly linked to better performance.

 

According to small business founder Denise Coy, listening to the employees is important for several reasons. “Not only does it tell us how they feel about their job and if they are happy, but it also lets us know if they have any questions,” she says. “It tells us if they are right for the job and if they can advance,” she adds.

 

Creating a paper trail

Discount Fabrics in San Francisco is a family-owned business founded in 1967. “For several years, things were very comfortable and business was easy,” says owner Linda Blake. “Because the stores were run by either family or people that had been with us so long they were treated like family, most employees were long-term and there were not evaluations or written schedules and very little was put into writing.”

But now that Discount Fabrics has grown to include three stores, many more people are working for the company and it experiences higher employee turnover. Consequently, the three-generation family business has begun conducting written performance reviews. Documented schedules, time cards, evaluations, and write-ups became a necessity.

“Truly I feel the written evaluations are much more helpful to management than to the individual employee,” says Blake, who says it is an important part of a comprehensive employee file, serving as a record of an employee’s performance and history with the company business to support management decisions. The year-end review establishes a paper trail for legal purposes and is also used by Discount Fabrics to fairly determine employee bonuses, benefit eligibility, and compensation.