Americans love their automatic products: ATMs, DVRs, coffee makers, garage-door openers, you name it. Now add to that growing roster the employer-sponsored automatic enrollment retirement plan, typically a 401(k), in which employees are now stashing money in record numbers.
An analysis by Aon Hewitt, the Lincolnshire, Illinois-based consulting firm, of 3 million employees across 120 large companies indicates that close to 76 percent of eligible employees participated in company contribution plans last year, driven by the auto-enrollment feature. That represents a nearly 10 percent jump from the number enrolled in 2005.
“Employees know they need to save for retirement but are too nervous to make the decision themselves, particularly given today’s volatility in the stock market,” says Gerald Wernette, director of Rehmann Retirement Builders at Rehmann Financial in Lansing, Michigan. “They see automatic enrollment as a way to have their investment decisions made for them, trusting their employers to mitigate any risk.”
For employees, the benefit is clear: They save for retirement while otherwise they might not.
“There’s no doubt that automatic enrollment prepares a lot more people for the retirement years,” says Steven Dimitriou, managing partner with Mayflower Advisors in Boston. “Even though automatic enrollment can put employees on automatic pilot when it comes to their retirement savings, they’re better off than without such a plan.”
Auto-enrollment plans have, indeed, broadened the number of people saving for retirement. However, there is concern that they dampen the overall savings rate of participants, who often contribute as little as 2 percent of their salary on a monthly basis without ever increasing their contribution rate.
In other words, employees tend to take a laissez faire approach toward such plans, letting them have a life of their own after the initial sign-up. Those who voluntarily enroll in a 401(k), on the other hand, tend to contribute at a significantly higher rate—an average of 7.8 percent monthly—according to Aon Hewitt’s research.
In addition, more than two-thirds of companies with auto-enrollment programs set default contribution rates at 3 percent of salary or less, an inadequate level of savings for employees who expect to retire one day. The Vanguard Group recommends those with incomes below $50,000 save 9 percent of salary or more, including a company match; those with incomes between $50,001 and $100,000 save 12 percent or more; and those with incomes above $100,000 save at least 15 percent.
“If a company is going to implement an automatic enrollment plan, it should start off employees at a meaningful number,” says Pamela Hess, director of retirement research at Aon Hewitt. “Saving just 1 percent less over a career can have a dramatic impact on savings, ultimately leading to nearly a 15 percent loss in retirement income.”
To drive savings rates higher, many companies have begun adding automatic annual increases to auto-enrollment plans. “An employer will start employees at, say, a 3 percent monthly savings rate but tell them, ‘Every year that monthly contribution will go up 1 percent until you tell us to stop,’ ” Dimitriou says.
Companies can boost participation rates by periodically “back-sweeping” employees, that is, automatically enrolling workers not participating in a 401(k) rather than enrolling only at the point of hire, Hess says.
Companies clearly have begun to see the value in auto-enrollment. According to the Aon Hewitt study, 60 percent of employers analyzed had an auto-enrollment feature in 2010, up from just 24 percent in 2006, when Congress passed the Pension Protection Act. That act removed roadblocks that discouraged employers from offering auto-enrollment and provided such programs protection from liability if they met certain requirements.
Putting such a plan in place, however, only makes sense if a company is willing to fully back it. That means more than sending out periodic emails reminding employees that the auto-enrollment program exists.
“A company has to give the automatic enrollment plan due consideration,” Rehmann Financial’s Wernette says. “It has to put in the time and effort that will give real results.”
That effort should translate into regular updates as to the company’s commitment and ongoing education for employees as to the plan’s benefit, according to Wernette. “You don’t want your employees to feel they’ve been sold a bill of goods.”
Companies also must understand upfront that automatic enrollment will likely drive up in-house costs in terms of matching contributions, as well as administrative expenses.
“It translates into money, time and resources,” Dimitriou says. “On the upside, such plans mean that more assets are in play.”
In addition, auto-enrollment can be a great marketing tool; it sends a message that the company is socially responsible and cares about its employees’ future.
Auto-enrollment, however, isn’t a good idea for all employers. Companies with a high turnover workforce, such as retail stores and restaurant chains, might not want to incur the additional costs and administrative burdens.
In addition, the benefits might be limited for their employees, who would accumulate small balances and be more likely to abandon them or take a lump-sum distribution when they leave the company. Such plans are also ineffective for those nearing retirement, who would benefit more from short-term, higher-yield investments.
Still, research points to the fact that overall, employees overwhelmingly appreciate auto-enrollment plans, and they provide a competitive edge in recruiting and retaining top talent. “Bottom line, employers have a great opportunity to help employees save for retirement,” Wernett says, “and at the same time benefit themselves.”
Workforce Management Online, August 2011 — Register Now!
Niche Sites Gain Monster-Sized Following
Need jugglers to entertain passengers on a cruise line? Proship Entertainment and Cruiseline Job are a couple of well-traveled sites for shipboard hiring. A high school football coach? Jobs InSports.com and iCoachUSA.com rank high on recruiters’ lists.
Move over CareerBuilder and Monster. Niche job boards continue to proliferate and grow in popularity, giving the top two job boards stiff competition. “While the large job sites provide a breadth of candidates, they result in employers having to slog through hundreds of résumés to find good talent,” says Peter Weddle, president of Weddle’s, a Stamford, Connecticut-based employment consultancy, and head of the International Association of Employment Web Sites. “Niche sites allow employers to go directly to the A-level performers, who typically focus their job search efforts on specialized search engines.”
Niche job boards are growing at a rapid pace. Today, some 100,000 Internet job boards vie for listings and résumés, double the number in 2000, according to Weddle’s research. And the job specific nature of the websites is becoming even more granular. “Job sites are slicing and dicing into ever finer gradation,” Weddle says. “No longer is it enough to have a job site focused on logistics, for example. It now has to specialize in warehousing logistics or trucking logistics.”
The growth of these niche sites results in large part from a recognition that the way to establish an edge over larger, general job boards is to offer more—much more—to those seeking specialized employment. One of the larger niche boards, AllRetailJobs.com, provides help with retail résumé writing for job hunters and a “Candidate Tracker” to help employers manage their searches. The site, which says it has nearly 55,000 job listings and 1 million-plus résumés posted, boasts 750,000 unique visitors monthly.
Then there’s VetJobs, a niche board aimed at transitioning veterans back into the workforce. It includes a “Spouse Portal” that provides job assistance to veterans’ spouses. The site says it attracts 110,000 unique visitors monthly and posts some 37,000 jobs and 120,000 résumés at any given time. Another niche board is Icrunchdata.com, which specializes in 14 specific categories of data and analytics jobs and allows direct application to employers. With 5,000 jobs and 110,000 résumés posted, it says it has 165,000 unique visitors per month.
“Job boards have evolved very similarly to any other industry in that you find a few big generalist and countless niche specialists,” says Ron Emery, co-founder and managing director of icrunchdata.com.
Of course, the big boards do have advantages. CareerBuilder and Monster Worldwide Inc., the industry leaders with an estimated 23 million and 20 million visitors per month, respectively, are extraordinarily well-branded.
“There’s not a person on the planet who hasn’t heard of Monster and CareerBuilder,” Weddle says. “Their reach is far and wide.” Additionally, the big boards have the resources to provide sophisticated features that niche sites simply can’t match, such as links that allow employers to broaden their searches and tap into previously ignored talent pools, and job seekers to explore possibilities they may previously have disregarded.
Still, the big boards aren’t taking the proliferation of niche boards lightly. CareerBuilder has launched a number of its own specialized boards, such as miracleworkers.com for the health care industry and jobsonthemenu.com for restaurant workers to ensure it captures the employers and potential employees who might shy away from broad-based job sites. Monster, however, is steering clear of niche endeavors in its effort to retain market share, focusing instead on search technology that helps employers sift through the millions of résumés on its site to find the best matches.
“Why limit a search for talent to a small pond when you can search the world’s largest database with precision and extend your reach all across the Internet for talent?” says Monster spokesman Matthew Henson.
While there’s no way of knowing how many niche boards fail, many startups come and go in short order, Weddle says. “There’s no barrier to entry in this industry so there are a lot of sites that are undercapitalized, haven’t done their homework and disappear in a flash.”
Although reports of niche job boards’ demise continue to circulate, with predictions that social media will ultimately replace them, evidence points to the contrary. A recent survey conducted by the Wharton Small Business Development Center at the University of Pennsylvania and Beyond.com, a career development website, indicated that most college students are reluctant to use social networking sites for career-related purposes. According to the results, 98 percent of students visit Facebook on a regular basis for personal use, but less than 35 percent of them use it for job search-related reasons. Also, more than 35 percent of those students indicated that they are uncomfortable using social networking sites for securing post-graduation jobs.
“When it comes to finding a job,” Weddle says, “even social network aficionados know to go to the job site with the most impact.”
Still, many recruiters are hedging their bets when it comes to filling positions. Chicago-based custom publisher Imagination Publishing relies on both general job boards and publishing-specific boards to find new hires. The same holds true for the Abis Group, an Evanston, Illinois-based specialist in online software for companies.
“We use the big boards to cover the broadest range of talent in the workforce and industry-specific boards to penetrate deeper into specific areas of expertise,” says Tyler Blue, Abis’ director of human resources.
Workforce Management, March 2011, pgs. 10-11 — Subscribe Now!