Plan Sponsors Ask…

Q: In reviewing employment data at our company, we were surprised to find the average time our employees stay with us to be about six years. Considering that many employees who leave us take a lump sum distribution from their 401(k) accounts, it made us wonder what we can do to help more transient employees prepare for the future.

A: First, congratulations. Your average tenure is slightly higher than that of the overall workforce, based on the January Current

Population Survey (CPS) from the US Census Bureau, as cited in an Employee Benefits Research Institute (EBRI) issue brief, Trends in Employee Tenure, 1983-2018, February 28, 2019. The issue brief reports that, according to CPS, over the past 35 years, a five-year employment tenure is about average. It seems the idea of holding one job for an entire career is a bit of a myth. The EBRI brief also points out the concern you have, that changing jobs (or even careers) every five years could have a negative impact on retirements. Shorter tenures may result in a lack of defined benefit plan vesting (when a defined benefit plan is even offered), reduced defined contribution savings, and as you mention, lump sum payments at times of job changes. While you may not be able to keep employees longer, you may be able to impact their savings and withdrawal decisions, thereby improving their future retirement prospects. First, implement regular and high-quality financial education, including specifics about the retirement plan. And second, enlist longer-term employees who do understand the plan to help give “on the ground” information to newer employees. Click here to read the EBRI issue brief.

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