Pension plans as tools for attracting and retaining employees

Pension Program

The global society is becoming more and more concerned with its future and this is due to numerous uncertainties, one of the more important of these problems being represented by retirement uncertainties. In this context, it is important to note the aging of the largest generation of workers. Not only in the United States, but across the entire globe, the new generations are fewer in numbers and the aging staffs find it insecure to retire.

The pension programs implemented by the employers as such become crucial tools in attracting and retaining employees, as they provide some safety regarding the future of the individuals. Such an approach is taken by Janet McFarland in her 2012 article in the Globe and Mail.

Article summary

McFarland virtually summarizes her standpoint from the very beginning of the article, placing her main point-of-view in the title of the work: "Pension plans play growing role in attracting, retaining workers." This statement is not only the personal perception of the author, but it is supported by a rather extensive study conducted onto 1,500 employees in various Canadian firms.

Traditionally, the focus on pension plans, especially among the younger category of employees, was a restricted one; today however, as the economic times are changing and the economy becomes less stable, workers are beginning to worry more about their future financial stability. In such a context then, current and prospective employees pay more attention to pension plans offered by the employers; subsequently, the pension plans become tools by which companies can attract and retain employees.

Some of the more notable findings of the survey are revealed throughout the following lines:

50 per cent of the workers with a traditional defined benefit plan (through which they receive a guaranteed level of retirement income) stated that the pension plan provided by their current employer constituted the primary reason as to why they took the respective job.

Only 30 per cent of the employees on a defined contribution plan stated that the pension program represented the main reason for employment. These plans are becoming more and more popular within the private sector and, unlike the defined benefit plans, they do not guarantee a specific sum; the final sum to be received at retirement depends on the performances of the portfolio of investments administered by the retirement program. This feature indicates that the workers seek stability in the future.

The employees on the defined pension plans (62 to 71 per cent of them) stated that the pension plans were the primary reasons as to why the keep their current jobs. With the defined contribution pension plans, only 30 up to 50 per cent of the employees stated that the retirement program was an important reason in preserving their current employment.

One third of the surveyed workers would renounce part of their income in order to guarantee higher retirement revenues. Also, 25 per cent of the Canadian employees would renounce a premium or bonus in exchange for more retirement funds and better stability. This employee willingness to sacrifice pay in exchange for retirement is indicative that the workers are unable (or unsure about their ability) to save for retirement.

The findings of the survey supported the initial belief that economic agents presenting their employees with stable and guaranteed pension plans are more likely to attract and retain workers; these companies are as such able to use their pension plans as competitive advantages in attracting and retaining talented staffs.

4. Concepts and legislation covered

The article written by Janet McFarland is rather succinct and it mostly relies on the results of the survey conducted by consulting firm Towers Watson. Its approach of the legislation is limited, but it does nonetheless point out to some notable economic concepts, which can be further elaborated. These refer to the following:

The changing nature of pension plans, for instance the defined benefit plan vs. The defined contribution plan. At this level, notable differences exist between the two and the first provides more stability, to as such be better preferred by employees of all ages.

The popularity of defined contribution plans within the private sector, which further reveals the numerous differences between the public and the private sectors.

The role of retirement plans to employee attraction and retention, which further elaborates into a discussion of the importance of employee benefits and incentives to adequate employee management, such as retention, hiring, loyalty, performance and so on.

5. Conclusions and recommendations

The modern day business context is highly pressured by the economic crisis and the companies have often sought to cut costs. Still, employees now come to value more solid retirement plans, and these plans have become powerful tools to employee attraction and retention.

In such a setting then, the final recommendation is that the economic agents need to place more emphasis on employee retirement plans. They should as such seek to invest in traditional plans which offer higher levels of security; employers should have high thresholds for risks and should instead opt for stability of investments. Additionally, when facing financial shortages, the employers should seek mutually beneficial solutions with the employees, such as relocating the money for bonuses for instance to the retirement plans, rather than cutting the retirement plans.

References:

McFarland, J. (2012). Pension plans play growing role in attracting, retaining workers. The Globe and Mail. http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/pension-plans-play-growing-role-in-attracting-retaining-workers/article4566174 / accessed on October 3, 2012

Price, a. (2011). Human resource management. Cengage Learning.