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Pension Plan Perks


Dear Dave
Our partners have always placed a strong value on looking out for the welfare of our employees. In addition to a good medical package, liberal paid time off policies and other fringe benefits, our firm has traditionally made an annual lump-sum contribution at the rate of 10 to 12% of compensation to the accounts of each of the members of our company profit sharing plan since our plan began in 1989. There is no contribution required by employees in order to participate. At that rate, combined with strong investment results, many employees have accumulated some very impressive balances in their accounts. New employees enter the plan after working 1000 hours and completing a year of service. Vesting occurs gradually over five years.

We think we offer an excellent program. However, to our great surprise, a recent internal employee survey indicated a significant portion of our staff places a relatively low value on the profit sharing plan as an overall part of our salary and benefit package. Are we putting too much into this plan?
DT OH

Dear DT
You didn’t mention which members of your staff did not think all that much of your plan, but I'd guess it would be the younger staff members or those newest to the firm. For them, either due to the number of years before reaching retirement age, or because they don't see themselves staying with your firm long enough to ever become fully vested, the plan seems too abstract and remote.

Generally speaking, the older the staff, the more value placed on such programs. Younger people are often concerned with more immediate needs such as saving for a house down payment, or coping with the expense of raising kids, or paying off education loans.

I’ve heard from several of my clients over the years that generous pension and profit sharing plans are not all that helpful when it comes to recruiting. It seems being able to offer a couple of dollars more per hour has a greater recruiting appeal to the majority of potential new hire candidates. I know of one client who has recently cut back on their profit sharing plan contributions and used the savings to increase salaries across the board for existing staff. This has allowed them room to offer higher salaries to help attract new employees without upsetting the apple cart internally in relation to what is being paid to current staff in similar positions.

 
 
Wahby and Associates