I do a lot of Behavioral Finance work and think about how to get people to save for retirement.
I discovered a roadblock in my own backyard.
I wrote a letter.
I’m writing you regarding EMPLOYER Faculty and Staff Retirement Plan and exclusion of employees who are classified as house staff, post doctoral associates & scholars, associates in research /research associate and chaplain with Job Code 1671 (herein “ineligible employees”).
I have two concerns
#1 Lack of accessibility of the information about the exclusion
#2 The reasoning behind the exclusion
I’m an Associate in Research at the Center for Advanced Hindsight. I’ve been at EMPLOYER for almost a year studying Behavioral Finance and thinking about how to encourage people to save for retirement. Yes, I’m disappointed that I’m ineligible (as well as everyone in my lab) but I’m also deeply concerned about the policy as it relates to the larger problem of saving for retirement.
Concern #1 –Availability of Information About the Exclusion
There was no explicit mention of the exclusion in the information that was provided to me upon being hired. I re-reviewed those materials including “My benefits. My life” packet and the only mention of eligibility (Page 32, fine print) appeared to be connected to tenure and being paid on a monthly basis.
Upon reviewing benefits information my perception was that after one year salaried by month I was eligible. On November 15th, 2011, I put a note in my calendar for November 15, 2012 to remind me to sign up for the retirement plan.
I’m not in this job for the benefits or salary but when the possibility of working at EMPLOYER was presented to me I took a close look at my finances to understand the implications of the job change. The job represented a huge increase in satisfaction and happiness but the tradeoff was a significant decrease in salary. I had to rethink my budget, investments and retirement plan. I worked with my financial advisor and we revamped my plan.
Not getting the contribution probably isn’t going to shatter my retirement plans. That said, the implications could have been significant for someone in a different financial situation.
It’s a struggle to get people to even think about retirement. EMPLOYER has a reputation for having a “great retirement plan.” Information about eligibility should be make much more explicit, especially to those who are ineligible. If not at the time of hire, there are other channels (e.g. plan website) where this could be explicitly communicated. I took me 11.5 months and some digging to figure it out and I'm paying attention.
Concern #2 – The reasoning behind the exclusion
Defined contribution plans are meant to encourage saving and can also increase tenure (vesting %’s based on years of service). Employers are incentivized to contribute to defined contribution plans.
Upon discovering that there was a class of employees who were not eligible got the EMPLOYER contribution I spoke with [HR] to better understand the reason for this.
My understanding is as follows:
A non-discrimination test of the EMPLOYER retirement plan indicated that Research Associates and other positions did not contribute to the plan or stay at EMPLOYER very long.
My concerns/confusion are as follows:
The EMPLOYER Retirement Plan was recently updated and now requires 3 years of service (instead of 1) before an employee is eligible for the contribution. If having people in the plan only stay a short time is a concern, this takes care of that. An employee can control how long they stay at EMPLOYER. The employee cannot control what other people with their title do.
The EMPLOYER Plan provides an outright employer contribution regardless of employee contributions (this is my understanding at least). This is probably one of the reasons that it has such a great reputation. Many companies will match employee contributions in order to encourage saving. Both approaches (outright contribution/matched contributions) have their merit.
If encouraging employee contributions is important to EMPLOYER perhaps a matching program could be create an incentive to match for classes of employees who don’t contribute on top of what EMPLOYER does.
I also have to wonder if the EMPLOYER program as currently structured is a good way to get people started and familiar with the idea (and benefits) of retirement planning. I imagine many of the ineligible employees are younger with small salaries. At that age and income it’s very difficult to think about the future and understand how a small contribution can grow over time. Perhaps EMPLOYER can give a head start of leg-up to who can benefit greatly from saving but don’t feel they can.
Thank you for your time and consideration.