Helping Drivers Retire In Comfort
Getting them to participate in retirement programs may help reduce turnover.
Patricia Smith
Senior Editor
Despite all the current talk about Social Security, there seems to be a surprising lack of interest in retirement savings programs. According to some estimates, fully one-fourth of eligible workers don't participate in company-sponsored 401(k) or similar programs. Or if they do participate, many don't set aside enough of their own earnings to take full advantage of company matching funds.
While many workers say they can't "afford" to put money into long-term savings, studies also show that "low-saving" workers often know little, if anything, about their companies' retirement programs. Too often, companies spend time and resources to develop and administer retirement savings plans, but fail to actively promote what could be a valuable program for employer and employee.
The most widely touted benefit is tax savings. Contributions to qualified retirement savings plans are not taxed until the employee actually withdraws the money. Earnings on those investments are often tax-free. Most employer contributions are deductible. "That's a big incentive for both employer and employee," says Will Steih, a CPA and retirement services consultant with the Synaxis Group.
Retirement programs may also help build company loyalty and perhaps play at least a small role in driver retention. At Crete Carrier Corp., driver turnover routinely stays below 40%. They pay well, says Kerry Kearl, vice president of company fleets, and they treat drivers fairly and with respect.
But Crete also has a generous benefits package including a profit share retirement program, which is automatic for all employees, and an optional 401(k) with company match. The company also contributes annually to individual retirement accounts set up by its owner-operators.
"Drivers who have been with Crete for a while have done pretty well, especially if they've combined 401(k) with profit share," Kearl says. "It's one of those little things that helps and, for driver retention, you'd better have a whole bunch of 'little things' going your way."
PLAN CHOICES
www.irs.gov/retirement. Banks, many insurance companies or brokers, and investment firms offer retirement plan consulting services including strategy and plan selection. Following is a brief summary of the more common options.
Most retirement vehicles fall into one of three categories: individual retirement accounts (IRAs), defined contribution plans, or defined benefit plans. Although we often think of IRAs as something individuals set up on their own, employers can help workers establish and even fund IRAs.
Defined benefit plans promise a specified amount upon retirement, usually based on salary and years of service. Defined contribution plans allow employees to contribute to individual accounts, and they receive the accumulated savings plus earnings (or minus losses) upon retirement. Low-margin businesses and companies with volatile cash flow or profit expectations typically choose defined contribution plans.
Companies that don't offer a company-sponsored plan can still encourage retirement savings through payroll deductions to the employees' own individual retirement account (IRAs). The maximum contribution for 2005 is $4,000 per participant, with a catch-up allowance for people over 50 years old. There are no annual filing requirements for employers.
SIMPLE (for Savings Incentive Match PLan for Employees) programs are allowed for companies with 100 or more employees. Employees can set aside up to $10,000 in 2005, with catch-up provisions for those over 50. Employers can contribute 2% of compensation for each eligible employee, or match 100% of the first 3% of compensation (this can be reduced to as low as 1% in any two of five years). Employer and employee contributions are immediately vested, meaning that employees are entitled to everything in their accounts whenever they leave the company.
SEP (for Simplified Employee Pensions) allow employers to set up an IRA for themselves and each of their employees. Employers must contribute a uniform percentage of pay for each employee, although contributions don't have to be made every year. Employees cannot contribute to the plan. The maximum annual contribution is 25% of compensation or a maximum of $40,000. Contributions are immediately 100% vested.
Among companies with 25 or more employees, 401(k) plans are the most popular option, perhaps because they offer a great deal of flexibility. Employees can set aside up to $14,000 this year - more if they're over 50. Employers can then opt to match a portion of each employee's contribution. The combined employer/employee contribution is capped at 100% of compensation or $40,000 per participant. Employers can deduct amounts under 25% of aggregate compensation for all participants. Employee salary deferrals are immediately 100% vested. Employer contributions may vest over time, according to terms of the plan. Programs vary in their complexity, but many financial institutions offer relatively simple plans aimed at minimizing administrative burdens for small companies.
Many elective savings plans allow company contributions to be tied to profitability, but companies can also offer traditional profit-sharing programs. They generally must be offered to all employees at least 21 years old who work at least 1,000 hours during the year. A set formula is used to allocate contributions among all eligible workers. The maximum contribution per participant is the lesser of 100% of compensation or $40,000. Amounts that don't exceed 25% of aggregate compensation for all participants are tax deductible. Employer contributions vest over time according to individual plan terms.
The choice depends on your financial situation, the goals of the program and the target participants. Steih says companies often look at retirement programs as a way to reward and retain upper management, but a plan that suits the company's executives may not be right for the rest of the employees or the company overall. "Attracting and rewarding highly compensated executives and attracting and retaining drivers or other workers are two different agendas," he cautions.
GETTING DRIVERS INVOLVED
A retirement plan won't do anything to build loyalty if drivers don't participate. One of the most obvious ways to encourage participation is for the company to make a contribution - most commonly by matching a portion of the employee's contribution. A program can even be structured so that the amount a company contributes or matches can be tied to profitability or other performance goals, such as productivity.
Communication is also key. A study by Hewitt Associates, a worldwide human resource consulting firm, found that workers who don't participate in company-sponsored retirement savings programs, or don't set aside enough to get the full match, often lack basic knowledge about the programs. As researchers noted, those employees were essentially leaving free money on the table.
Obviously, many employees don't participate in retirement plans because they don't feel they have "extra" cash to put into long-term savings. Debt is also a factor. When Hewitt asked low-saving workers what they would do if given a $500 raffle prize, more than half said they would use some or all of it to pay down debts.
Even procrastination plays a role. Kearl says Crete's younger drivers typically don't express much interest in retirement savings, but when they get to their mid-40s "they start paying attention."
But low-savers also seem to lack a clear understanding of retirement planning, the benefit of long-term savings and options available to them. In the Hewitt study, almost a third couldn't correctly identify the rate at which their employer matched contributions. Over half didn't know if the company even offered a match.
Other studies have shown that education and communications can have an effect on employee participation. Experts also say that good communications doesn't have to be expensive. Some relatively simple yet effective strategies include mailings to employees' homes explaining the program and how it can benefit them and their families, inviting spouses to benefit-review meetings, and payroll envelope stuffers promoting the short- and long-term benefits of retirement savings.
One former personnel manager for a small company said she was able to significantly boost participation by sending a note to non-participating employees pointing out how much they were forfeiting in match contributions. Those who weren't moved by the financial argument at least got another important message: The company wasn't just offering a program, it was genuinely concerned about the long-term financial security of its employees.
For many of its trucking clients, Synaxis prepares personalized statements detailing company benefits and their monetary value to drivers.
"Putting numbers to paper makes benefits more meaningful," says Steih. The statements are used in recruiting but can also be an effective tool for driver retention. "When a driver gets that call from another company offering a couple cents more per mile, he can compare apples to apples, including benefits," he explains.
Synaxis has also developed audio tapes for drivers using a talk show format to review company benefits. "They're going to be listening to something anyway, so why not hear a 30-minute discussion on the group benefits package, including the retirement plan?" Steih says.
Plans should be explained thoroughly, including concepts like matching, vesting and portability. Employees need to understand what happens to their savings when or if the leave the company, and what they lose every time they change jobs. While most experts say it's not a good idea to encouraging borrowing from retirement plans, younger drivers may be more likely to participate if they know they have that option.
Once on board with a retirement program, employees need to stay informed. Quarterly statements are standard. Many companies or third-party plan administrators also offer toll-free telephone and even Internet access to account information, plus numbers to call with questions about the plan. Less common, but increasingly popular, are online tools that help employees determine how much income they'll need for retirement and even help project what various investment strategies might yield over the long term.
Workers want choices. Most plans today have at least 10 or 12 investment options ranging from the very conservative to the very aggressive. But studies also show that many people are not comfortable with investing and seldom have a good understanding of the investment options offered in their company savings plan. That, says Steih, is one of the most important services third-party administrators like Synaxis can offer.
"It's not that trucking company CFOs aren't smart enough, they certainly are," he says. "But having a qualified professional on board gives them a degree of separation from that role."
Unfortunately, he adds, when workers don't have a qualified professional they can turn to for investment information the tend to blame the company when the market takes a nosedive or their savings doesn't grow as expected.
