Young Workers as Lifers? Millennials Push Employers on Retirement Benefits
After seeing parents struggle through the Great Recession, a survey reveals that for many younger workers, financial security later in life is growing more important.
Emily Copenhaver had four job offers when she graduated from college in 2006.
With prospects in different industries and locations, Copenhaver said she had to prioritize her values. Location and opportunities for growth ranked high, but Copenhaver says she was also concerned about retirement and her ability to stop working when she wanted.
“I saw the struggles that my parents were dealing with, and I decided that this is the time to think about what is going to happen to me 30 to 40 years from now,” Copenhaver says. “Especially people my age, we are more concentrated on benefits than ever.”
Copenhaver, now 28, decided to take a job at TE Connectivity in Middletown, Pennsylvania. A communications analyst for the global electronics company, Copenhaver says she has been at the company for six years and plans to stay.
One of the reasons, she says, is because the company’s defined contribution plan contributes $5 for every $1 employees contribute annually, up to 1 percent of pay. The company match increases with every 10 years of service. It also offers an employee stock purchase plan through which it matches 15 percent of employee contributions up to $6,000 annually.
“I’m in no hurry to leave,” Copenhaver says. “The longer you stay, the more they contribute.”
Copenhaver is one of a growing number of younger workers who has weathered the economic crisis and is looking for financial security. It’s not simply base pay that workers are after, but also defined contribution and defined benefit plans, data from a recent survey by consulting firm Towers Watson show.
In a survey that using 23 factors that employees consider when taking a job, workers younger than 40 ranked the importance of retirement benefits eighth. Overall, 1,529 full-time U.S. employees younger than 40 responded to the Towers Watson Retirement Attitudes Survey in 2011.
“Retirement has risen higher in importance than we’ve seen in the past,” says Laurie Bienstock, North America practice leader for rewards at Towers Watson in San Francisco. “This is a direct result of the financial crisis. Companies started freezing pension plans, cutting pay and laying off workers. The whole fabric of our workforce changed very quickly and it made people re-evaluate what is most important to them.”
Two major types of retirement plans are available today: defined contribution and defined benefit. Employees in defined contribution plans typically contribute part of their pretax salary, which can by matched by the employer. The employer offers investment options, but the employee typically directs where the money goes.
In contrast, defined benefit plans promise a monthly annual benefit upon retirement. That amount is usually based on a formula that may include an employee’s age, years of service and final salary. The employer bears the burden of funding and investing the assets in this plan.
According to the survey, nearly a third, or 28 percent of 961 workers younger than 40 with a defined contribution plan, say this benefit was an important reason to take their job. That’s up from 19 percent in 2009. Nearly half, or 47 percent of these workers, would like to stay at their job until they retire, up 10 percentage points from 2009.
Yet Steve Lopez, a Dallas-based director for solutions at staffing giant Manpower, says that many young candidates for jobs today are not as tuned in to retirement benefits as the Towers Watson survey reflects, and very few are looking at jobs at companies where defined benefit plans are offered. But candidates interested in what companies offer in this arena are asking more sophisticated questions than before.
“Retirement has always been an important benefit, but because of the devastating effect of the recession, some [candidates] are taking the next step and asking about vesting schedules and investment options,” Lopez says.
Finding a nonpublic-sector young worker with a defined benefit plan these days is a rarity. Towers Watson data from 2011 show that only 30 of the Fortune 100 companies in the U.S. have a defined benefit plan, compared with 83 in 2002.
But for the 467 workers younger than 40 with a defined benefit plan in the Towers Watson survey, 63 percent said the retirement benefit was an important reason to take the job, and 72 percent said it was a solid reason to stay. Nearly three-quarters, or 74 percent, of workers surveyed in this category said they would like to stay at their job until retirement.
A couple of years ago, employees were happy simply to have a job, Bienstock says, but now that employment is rebounding, employers need to look at their benefit offerings in a broader context. For those few defined benefit plan sponsors, Bienstock says their plans may be the unique draw that attracts critical-skill workers.
“The ability for a company to generate revenue may be hampered by how a company attracts and retains employees,” Bienstock says. “Changes to retirement plans definitely impacts people’s choices to join or to leave.”
Patty Kujawa is a freelance writer based in Milwaukee. To comment email firstname.lastname@example.org.