PLANSPONSOR - April/May 2019 - 16

Upfront
Shorter Tenure Calls for Progressive Design
A DECREASING average tenure among
segments of the U.S. workforce is affecting
more than company productivity-it also
affects the success of employer-sponsored
retirement plans.
An Employee Benefit Research
Institute (EBRI) brief examined employee
tenure among American workers, finding
that, in the past 35 years, the median
tenure for those ages 25 and older, of
all wages and salaries, has remained at
five years. However, for men 25 through
64, the median tenure stood at 10.2 last
year-a substantial drop from the 15.3
years measured in 1983. Women in the
same age group held a median tenure of
4.9 years last year, a slight decline from
5.0 in 2016.
While the strong economy could
explain why workers are able to move
on-a positive interpretation-the EBRI
report warns that doing so can cause negative
consequences for employees' financial
health. Among these is the fact that
shorter tenures may reduce the percentage
of workers eligible for or contributing
to a defined contribution (DC) plan. In
addition, even when shorter-tenured
employees join a DC plan, they may
encounter a vesting period and need to
draw on retirement assets to cover emergency
expenses.
A 2018 Investment Company
Institute (ICI) study, conducted in collaboration
with EBRI, looked at average
account balances and compared " consistent "
participants with participants who
had at some point paused, and presumably
restarted, their contributions. The study
reported that, for consistent participants,
the median account balance was three
times the median across all participants.
Neal Ringquist, executive vice president
and chief sales officer at Retirement
Clearinghouse, suggests that figures like
this underscore how employee tenure can
affect retirement plan performance.
" When a worker has greater tenure,
he tends to not demonstrate destructive
saving behaviors, such as cashing out,
stopping contributions and so forth, "
Ringquist says. " When an individual does
change jobs, the retirement system tends
to drive some decisions that are destructive
to his preparation for retirement. "
Experts agree that sponsors can
make progressive plan design changes
to ensure that new workers are joining
the company plan. Two proven examples
are implementing immediate eligibility
for the plan and automatically enrolling
participants, says Spencer Williams,
founder, president and CEO of Retirement
Clearinghouse.
But even if a new employee is automatically
enrolled into the plan, this does not
mean he is defaulted at the same savings
rate he may have attained at a previous job.
Joe Connell, a partner at Sikich
Retirement Plan Services, says this type
of capability would be hard to put into
practice. Instead, he suggests employers
use onboarding questionnaires to get new
employees thinking about the right level
of savings.
" You can't auto-enroll at different
rates for everybody, " Connell says. " But you
can ask as part of the onboarding process
and help an employee opt in to where he
wants to be, versus the automatic rate you
would give him. " -Amanda Umpierrez
16 PLANSPONSOR.com April - May 2019 Art by Blair Thornley
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PLANSPONSOR - April/May 2019

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