Title: Finding the Middle Way for Your Bank's Retirement Program: What Keeps Veteran and Higher-Level Employees Happy Doesn't Get Young Newcomers Excited. but You Can Control Plan Costs without Breaking the Bank
Abstract: Think of your head of commercial lending. More than likely, this senior banker knows your market inside and out, and can smell good business before the also-rans in your market can see it. As CEO, you'd hate to lose this banker to a competitor, and you've done what you could over the years to make sure that he or she stays happy, and productive. Now think of one of your newest, youngest employees. This might be a teller, perhaps a customer service representative, or perhaps some smart young computer whiz who's giving your experienced operations people a run for their money. They may regard their position as a good start in business life, but the likelihood that they think of themselves as lifers is pretty remote. This colors their perspective on many aspects of your bank's benefits package. Younger singles may worry less about medical, for instance, than married middle-agers with families. But it's likely that no other facet of your benefits expense represents so wide a gulf in generational perspective as the retirement program. Torn between generations Many community banks are grappling with the costs of meeting the preferences of multiple generations of employees, according to Richard Rausser, vice-president and head of the benefits consulting practice group for Pentegra Retirement Services, which specializes in community bank programs. The firm is based in White Plains, N.Y. Young hires, says Rausser, have come to expect to be offered a 401K plan. Not only do they expect a plan to be available, but they also expect it to come equipped with a very generous employer match payment each year. (Perhaps they even expect nonmatching profit-sharing payments into the plan.) Unfortunately, they also like such plans because of a different match. the strong match between 401Ks' portability with the younger generation's vocational mobility. Folks who don't expect to work for you for all that long want to be able to take their money and run, to be blunt. Thus, they are happy with a defined contribution 401K plan, and Rausser says they don't expect a defined benefit plan. Indeed, they may not even understand the concept of the classic company pension. On the other side sit defined benefit programs. With their emphasis historically on vesting as seniority accumulates, and their promise of eventual payoff, defined benefit programs have long gone hand in hand with community banking's emphasis on employee longevity. Indeed, Rausser, whose company manages both defined contribution and defined benefit plans for client banks, says Pentegra clients with defined benefit plans find they make the bank sticky, in his word--employees definitely stay on. Furthermore, while younger, entry-level workers don't much identify with defined benefit programs, candidates for middle-management and senior-management posts get defined benefit programs, Rausser says. And these are some of the posts that can be hardest to fill with really good newcomers as a bank attempts to replace retirees or expand its operations. It's easier for banks to attract those people because they offer defined benefit plans, says Rausser. Taming through tiering Banks need fresh blood, but they also rely on experienced employees. But it's expensive to offer all employees both kinds of plans. Rausser says that between 60% and 65% of his client companies offer both 401Ks and defined benefit plans. Rausser says some banks have responded to rising benefit costs by hard-freezing the defined benefit plan that they've offered for years. This entails safeguarding what employees have already earned, but cutting the plan off on some given date. After that point, the bank puts its new spending on retirement plans into an enhanced 401K for everyone. That's not the best approach, cautions Rausser. When a hard-freeze goes on, he explains, younger employees wind up getting a windfall and older employees wind up getting shortchanged. …
Publication Year: 2007
Publication Date: 2007-11-01
Language: en
Type: article
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