How Do Your Benefits Shape Up?
With the troubled economy, all of manufacturing is worried about its future. Most companies are devising new methods for staying competitive against foreign, low-cost providers, and others are still struggling with the possibility of layoffs. While managers and executives worry about the next decade of their company's success, the people they employ are also increasingly concerned about their future, particularly if they're nearing retirement. At the same time, their high-skill replacements are actively shopping around for the best employers, because they know their skills are in demand.
Even in economic trouble, manufacturers need to ensure their companies are considered a viable employer by any potential hire, which is particularly important for those businesses in need of highly-skilled labor. One of the easiest ways for a company to ensure this viability is to ensure its benefits package at least meets -- if not exceeds -- the industry standard. There is little doubt that manufacturing workers, both young and old, will cast an increasingly harsh eye on saving for retirement -- if nothing else, the economic turmoil has taught them to play it safe, and to play to win.
And how is manufacturing performing when it comes to retirement? A recent survey from Vanguard, a Pennsylvania-based investment management firm, shows that manufacturing, as a whole, is about on par with the averages of all other industries. Small manufacturing firms slip behind in several key metrics, such as enrollment rates and account balances in 401(k) accounts when compared to Vanguard's overall portfolio, but large manufacturing companies outperform the Vanguard average to varying degrees.
In short, this means that small manufacturers have their work cut out for them when it comes to retirement benefits, while their larger cousins must consistently strive to be better than the well-performing average. The key, according to Bill Doughty, Senior Manager with Vanguard's Strategic Retirement Consulting group, is being competitive -- whether that's against the other job shop down the street, or the big distribution center on the other side of the county. He says, "Things look good. The reason why we did this, bottom line, is to help the plan sponsors -- the company owners -- make good decisions about their plan, and in turn help their employees make good investment decisions."
Editors' Note: Vanguard defines "small" manufacturers as those with less than 1,000 employees, and large, clearly, with a greater number.
Across all of Vanguard's clients, 74 percent of employees are engaged in some kind of retirement plan. Small manufacturers are slightly behind the average, at 71 percent, and large companies bookend the variation, at 77 percent. If you're an average smaller manufacturer, there is plenty of room to make gains on the competition. Even aligning your plan with the large manufacturer participation rate would be a significant advantage over your competition. Again, executives at large manufacturers need to work even harder to boost their own rates -- there is little doubt these numbers will continue to climb when the economy recovers.
Vanguard has found that more employers are opting to automatically enroll their employees into a retirement plan to boost participation rates. Vanguard's average is 24 percent, and 23 percent of small manufacturers automatically enroll their employees. In contrast, 67 percent of large manufacturing firms used one of these plans, and it may correlate to their higher participation rate in the previously-mentioned metrics.
But an auto-enrollment plan does more than boost their numbers -- it helps simplify the benefits process, and often comes attached to target-date finds, which are tailored to an individual's needs. Smaller manufacturers could be doing much more to get their own people involved in retirement plans, and the large companies should be aware that a majority of their competition has already adopted a similar program.
Vanguard defines target-date finds (TDFs) as a broadly-diversified fund that becomes increasingly conservative as the employee reaches retirement age. Young employees are subject to more risk -- they could make significant gains, but don't stand to lose four decades of savings -- while older workers slowly and safely add to their existing stockpile. On average, 75 percent of Vanguard's clients use TDFs, while 71 percent of small manufacturers do the same. A stunning 92 percent of large manufacturing companies offer TDFs, which means the benefits competition is already steep. It's clear these large firms already have both their aging workforce, and their younger replacements, in mind.
And finally, the last metric Doughty recommends business leaders keep an eye on is their employee's account balances, as this a conglomerate of many other contributing factors, and can quickly signify how prepared someone is for retirement. Large manufacturing firms lead the charge at $82,164, while their smaller cousins average out at $71,163. Per the typical distribution in this survey, Vanguard's average is between the two, at $79,077. Again, this proves the benefits competition among larger manufacturers is fierce, and those who don't keep tabs of their competitors will quickly fall behind. The smaller manufacturers who make a significant push in any of these metrics will quickly find themselves far exceeding Vanguard's averages.
What, then, should a company do with these numbers? Doughty says that "if [plan sponsors] want to start with something simple, it could be more employee education." Among all the avenues, this is most important. By getting more of their workforce to engage with their retirement benefits, a company can see its numbers rise dramatically, which satisfies current employees and entices prospective ones. As with most processes, this is a top-down effort -- executives and managers need to become aware that more employees are weighing the nature of their benefits.
Doughty cites auto-enrolling as one way to quickly boost participation rates. With an easy out for those who still don't want to collect retirement benefits, these automatic plans generally are a no-loss solution. Oftentimes, it forces an employee to engage with the problem, and solve it, when they might have otherwise ignored it. The one problem, however, is that when employees don't opt-in, they might be considerably less engaged. At this point, the problem loops back to management -- they need to be educated enough to push their employees in the right direction.
In the end, the best way to boost these metrics is simply to get more employees into these, or similar, plans. "Get people into the plan," Doughty says. "They're not going to have money in the end if you're not participating." This benefits not only the employees, but also the company, in a feedback loop. In addition, employers should "make sure [their employees] are invested appropriately. We can't control the markets, but we can control those factors."
To learn more about Vanguard's survey, see: Manufacturing Firms 2011: Industry Benchmark Data Supplement to How America Saves.