As we live longer, more employees are staying in the workforce beyond their anticipated retirement date, a trend that demographers expect to continue until near the end of this decade.1 While some workers voluntarily choose to continue working, for many, staying in the workforce is a necessity. When surveyed, 57% of finance executives said they believed delayed retirement was primarily due to inadequate savings, forcing employees to stay on the job past their desired retirement date.2
For employers, an increase of just one year in the average retirement age of their workforce can increase labor costs 1-1.5%.3 For an employer with 3,000 employees and workforce costs of $200 million, a one-year delay in retirement age may cost $2-3 million each year. The average cost to employers for each person who delays retirement is more than $50,000 annually, which could be the cost differential between the retiring employee and a newly hired employee.4
Plan Fees Can Play a Part
Inadequate savings aren’t necessarily only due to workers failing to save. The increasing Full Retirement Age for Social Security, low interest rates limiting how much older workers can earn from their savings, nest eggs ravaged by the Great Recession and skyrocketing educational expenses for children — especially for those who delayed becoming parents — have all taken their toll.5 The costs of caring for aging parents can create an additional financial burden for many families. Finally, excessive retirement plan fees may play a part in this scenario.
One way to increase the net value of 401(k) plans to investors and give them the means to retire on time is by reducing and controlling plan fees. A small reduction in fees can have a dramatic effect on individual investors. “Fees erode returns,” says Josh Robbins, chief strategy officer at America’s Best 401k. Take two investors, for example: one who’s paying 1 percent in fees and another who’s paying 2 percent. When they retire, “the person [who paid] 2 percent in fees will run out of money 10 years sooner than the person with one percent in fees,” Robbins says. “That’s dramatic.”6
Better Benchmarking Can Help
One way to help employees retire on schedule to pursue their post-work dreams — and help employers avoid higher labor costs — is by regular competitive benchmarking of 401(k) plans to ensure that the fees being charged are not excessive. Plan sponsors and advisors have a fiduciary responsibility to operate their plans for the benefit of participants, and that includes monitoring not just performance, but also plan costs and fees.
Regular monitoring of 401(k) fees — and taking steps to control and reduce them — will help provide employees with the financial assets they need to retire sooner and more comfortably. And earlier retirements can have a significant, positive effect on their employers’ bottom line.
While the implications for the trend toward extended time in the workforce for employees is distressing and clear — the financial consequences for employers can be overlooked and underestimated in discussions between advisors and sponsors about plan fees. Sponsors must understand how even small reductions in fees can translate into much larger savings not only for participants but for the organization as well, as they help usher workers into retirement on schedule.
PlanFees gives you an accurate and fully customizable benchmarking analysis — anytime and anywhere you need one. We make it so simple and convenient that you’ll be able (and want) to benchmark all your plans every single year. You can provide a higher level of service and savings for plan sponsors and participants — and your clients can have greater confidence that they understand their fees and are meeting their fiduciary obligations. Call (949) 305-3718 today or sign up for our next webinar to learn more about PlanFees — a better way to benchmark.