Small businesses are facing growing pressure to offer attractive retirement benefits that can help them recruit and retain the best talent in their field. Although many small business owners understand the importance of retirement benefits, they often struggle to determine whether their offerings are competitive.
However, by focusing on a few important benchmarks, companies will be better positioned to evaluate and enhance their retirement packages to meet or exceed industry standards.
Employer Contribution Matching
The employer contribution match is one of the most significant benchmarks for competitive retirement benefits. Current market analysis shows that the average employer match has reached 4.6% of employee salary, a notable rise over previous years.
Based on this average, we recommend small businesses offer a match of at least 3% to remain competitive, although matching up to 6% has become increasingly common among companies seeking to distinguish themselves in the market.
Vesting Schedules
The vesting schedule for employer contributions is another important benchmark worth assessing. In the past, immediate vesting was only offered in exceptional cases, but it has become increasingly standard among more competitive employers.
Companies that are still using traditional vesting schedules typically offer full vesting within three to five years. Progressive vesting schedules, which see employees become partially vested over time, remain popular, with 20% vesting per year over five years being a common approach.
Plan Administration Fees
Administrative costs can significantly impact a small business’s expenses and employee returns. Competitive plans typically maintain total plan administration fees that equal less than 1% of assets under management. However, the general average is 1.6%.
Small businesses should regularly benchmark their fees against the industry averages and negotiate with providers to secure that their costs remain reasonable. Leading companies in this area absorb administrative fees instead of passing them on to employees.
Diversity of Investment Options
Another good benchmark to consider is the range of investment options your employees can choose from. The most competitive plans will offer several investment options, including a mix of index funds, actively managed funds, and other options.
These options should cover a mix of asset classes and risk levels while maintaining a reasonable expense ratio. For example, a figure under 0.5% for passive funds and 1% for actively managed options is a good goal.
Participation Rates
Employee participation rates provide an essential metric for measuring the effectiveness of your program. High-performing plans can achieve participation rates of well above 85%, often through features such as automatic enrollment and escalation. Small businesses should track their participation rates and implement strategies to increase engagement if they fall below the desired level.
Auto-Enrollment and Escalation Features
Retirement plans increasingly rely on automatic features to boost participation and savings rates. Competitive plans might set auto-enrollment at around 6% of salary, along with yearly annual escalations of 1% up to a cap of between 10% and 15%, for example. These features can be highly effective in helping employees achieve retirement readiness while requiring minimal ongoing intervention.
Financial Education and Advisory Services
Access to financial education and advisory services has become a distinguishing feature of the top retirement benefits packages. Competitive plans will offer workers online tools, group workshops, and individual consultation opportunities to establish they understand their options and can choose the best path forward for their circumstances.
Some of the most outstanding programs provide personalized guidance beyond retirement planning, including financial wellness support.
Mobile Access and Technology Integration
Technology integration is an increasingly important benchmark for assessing your retirement plan’s competitiveness. Today’s leading plans offer extensive mobile access, allowing employees to manage their accounts, adjust contributions, and access educational resources from their smartphones. User-friendly interfaces and seamless integration with payroll and HR systems have also become standard expectations.
Loan and Hardship Withdrawal Provisions
Although the primary purpose of retirement plans is helping employees establish and grow long-term savings, competitive packages include reasonable loan and hardship withdrawal provisions. This often includes allowing a set number of outstanding loans with specified minimum and maximum loan amounts.
Regular Benchmarking Reviews
The most successful small businesses conduct yearly benchmarking reviews to secure that their retirement benefits remain competitive. These reviews should examine both quantitative metrics and qualitative features, comparing them against the industry standards and local market conditions.
How Does Your Small Business Stack Up?
Comprehending these benchmarks is the first step in developing and maintaining a competitive retirement benefits package. Small businesses should regularly evaluate their offerings against these metrics and adjust where needed to remain competitive.
At Business Benefits Group, our benefits consulting team specializes in helping small businesses optimize their retirement benefits programs. We can provide detailed benchmarking analysis, recommend specific improvements, and help implement changes that enhance your ability to attract and retain valuable employees.
Reach out today for a thorough evaluation of your current retirement benefits package and to discuss how we can help you build a more competitive program for your workforce.
