Many organizations over the past few years have either frozen or eliminated traditional defined benefit (DB) pension programs. Similarly many organizations many organizations have established various forms of defined contribution (DC) programs to replace DB plans or as a stand-alone retirement program. However, while such moves may generate short-term benefits to the organization, long-term consequences are yet to be fully recognized, including recruitment and retention. Retirement programs, like health coverage, is a highly valued benefit by employees. Eliminating such programs, or establishing minimal programs, will not only create a degree of employee discontent over time, but will also result in employees’ financial inability to retire at their desired timing. Such inability means employees work long past their desired retirement timing resulting in significantly higher cost to the organization, and a workforce that is no longer engaged. Short-term gains will be significantly overshadowed by long-term cost to the organization.
Both DB and DC plans each have their own benefits, and correspondingly come with their own disadvantages. Creating the correct blend, based on business line and employee demographics, is critical to ensuring balanced retirement programs that meet the needs of an organization and the employees. Such a balanced approach creates a win-win scenario.
Thoroughly evaluating the cost/benefit input and output, both short- and long-term, for each type of plan is a key step in creating the right combination of DB and DC plans to achieve the desired end result. Like compensation programs, building flexibility into retirement programs is essential to allowing responding to the uncertainty of the future without substantially creating negative impacts on the workforce.
Traditionally post-retirement medical (PRM) plans have been an integral part of an organization’s total retirement program. However, like traditional DB plans, PRM plans in many organizations have also been eliminated or significantly scaled back. These moves have been driven by both the rising cost of health care and accounting requirements which can generate unfunded liability (legacy cost) on the organization’s balance sheet. Like retirement plans, without PRM plans employees often find themselves unable to retire until medicare eligible resulting in the same long-term impact to an organization. While many organizations believe PRM plans are affordable, the reality is, it is based on plan design and coverage design. It is also driven by striking the right balance throughout the entire compensation and benefit programs within the organization.
Creating and offering sound retirement and post-retirement programs can set an organization apart from others, creating in part the desired employer-of-choice reputation. Under such a scenario an organization can strengthen their recruitment and retention, maintain a positive work environment and increase business competitiveness.
How DPS can help you:
DPS can help an organization with evaluating and establishing or reconfiguring existing retirement programs to achieve desired organizational balance. With significant experience in managing/overseeing both DB and DC plans as well as PRM plans, DPS has the working knowledge to support organizations desiring to improve their overall retirement programs from all perspectives.