Employers are known for going to great lengths to attract the best hires. Unlimited snack food, free haircuts, and elaborate company parties are viewed as essential weapons in the competition to recruit and retain talent. However studies show that employees don’t actually care that much about glamorous extras. When it comes to choosing an employer, retirement plans take precedence over perks.
Glassdoor conducted a study which found that a good retirement plan is one of the top 3 most important benefits. 62 percent of employees said a 401(k)/retirement/pension plan was important, as compared to just 21 percent when asked about office perks.
Retirement plans are clearly a priority for today’s worker, but it is not easy to determine the quality of a plan or compare them. Corporations traditionally guarded the details of their plans, and any information that was available was difficult to understand. Then the government mandated that companies disclose information about their 401(k)s, and the Department of Labor began putting it online in 2010.
Bloomberg recently came out with a ranking of 401(k) plans at the 250 biggest companies in the U.S.. based on this data. They enable employees to see how their 401(k) plan rates against others for the first time.
ConocoPhillips came in at number one with the most lucrative retirement benefits, followed by Philip Morris and Amgen.
Interestingly, Facebook came in last. Facebook’s employees may have on-site dry cleaners and a video arcade, but the company didn’t even start offering matching contributions until 2012. FutureAdvisor also conducted an analysis of Facebook’s 401(k), and gave it just 2 out of 5 stars. This data demonstrates that there is not necessarily a connection between the quality of an employer’s fringe perks and the more substantial benefits they offer.
The Bloomberg ranking was based on filings with the Department of Labor and considered 7 weighted criteria — potential company match (50%); additional company profit-sharing or retirement contribution (15%); years to vest (15%); investment offering of stock, bond, international index funds (10%); automatic enrollment (10%). Scores were deducted for employers that paid the match at or after the end of the year, or required employees to work for a year before receiving the match.
ConocoPhillips scored so well mainly due to its large matching formula, which contributes 9 percent of annual salaries for employees who save as little as 1 percent of their pay. Philip Morris pays a 5 percent match, as well as an extra 15 percent of employees’ compensation. The report also included some interesting data, such as more than 40 percent of companies allow workers to vest immediately, and energy and biotech companies generally scored highly.
“One finding rings out clearly: when generously conceived, a 401(k) plan can put workers on the track for a comfortable and secure retirement,” Bloomberg said.
Sadly, a majority of Americans are not on track for a comfortable retirement. A report last year from theNational Institute on Retirement Security found that retirement savings in the U.S. are “dangerously low.” More than 90 percent of working households do not meet conservative retirement savings targets for their age and income. 45 percent do not have any retirement account assets at all.
This crisis has not gone unnoticed by millennials, who are “focused in retirement in a big way,” according to a survey from the Transamerica Center for Retirement Studies. The survey found that 3 out of 4 millennials are already discussing saving, investing, and planning for retirement. 70 percent are already saving for retirement, and are starting at an increasingly early age. Those that participate in employer-based 401(k) plans contribute a median eight percent of their salary into the plans, and 10 percent for employers that offer a matching contribution.
For employees of companies that aren’t on Bloomberg’s list, there are a number of ways to tell whether your employer’s 401(k) plan is good. To start, look at the matching model — how much is the employer contributes and how easy it is to take advantage of the match. Other factors to consider are the plan’s average account balance, participation rates, and fees. Another sign of a good plan is immediate eligibility.
There are a multitude of things to consider when evaluating how an employer treats their employees. Retirement plans are just one [albeit key] component. Facebook may rank last for its 401(k), but the company is also known for having some of the happiest employees in Silicon Valley, and is rated 3rd by its employees in terms of pay and benefits.
The differences in plans from one company to another can add up to hundreds of thousands of dollars over the course of a career. Work benefits have just as much of an impact on your future as your present, so remember not to trade a generous retirement plan for a free lunch.