Majority Democrats in Connecticut’s Senate proposed a bill to establish a universal 401(k) savings plan for the state’s small businesses, which would enable more workers to have a retirement plan.
It would be the first universal state-sponsored 401(k) plan in the nation. The legislation was intended to give small employers and individuals a low-cost option. Opponents argued it would be too expensive and would not address the costs to small businesses.
The bill, supported by the American Association of Retired Persons, would empower the state comptroller to establish the plan for businesses with 100 or fewer employees.
“Our society hasn’t saved enough and it can no longer rely on Social Security,” said R. Patrick Morrow, a financial adviser at Merrill Lynch. “We are overspenders, and there needs to be a reeducation of what people should do.”
A survey by the Employee Benefit Research Institute last month said 49 percent of workers reported less than $50,000 in savings and investments. That excludes the value of their homes and pensions. Even worse, 22 percent of workers and 28 percent of retirees say they have no savings at all.
Morrow has been working with fashion companies to help them establish retirement plans that meet the needs both of the company and its workers.
“When you’re starting out in apparel, the pay tends to be low,” Morrow said. “Depending on the tax bracket, for every $100 that is put away in a retirement plan, the cost is really just $65, on average” because the money is deducted from gross earnings.
He noted that retailers often don’t have a high participation rate because of numerous stores. It is far easier to set up at a company headquarters and meet with the employees there than it is to reach out to the employees at the store level at each location. As for apparel firms, many of the nonpublic ones have an entrepreneur founder-owner who feels that profits must be put back into the business to build it, Morrow noted.
A sampling of public apparel and retail companies suggests that they are more generous and better positioned to offer varying options for their employees.
J.C. Penney Co. Inc. is one of the few retailers to offer benefits to part-time associates. Those who work less than 35 hours a week are also invited to participate in a benefits program that includes medical, dental and life insurance coverage, according to the company’s Web site. Wal-Mart Stores Inc. said it contributed $870 million last year into its associates’ profit sharing and 401(k) plan accounts, even if the associate chooses not to contribute.
Among the apparel firms, Phillips-Van Heusen provides a 401(k) plan with a company match, as well as a company-paid pension plan. And Nike offers retirement plans that vary by geographic region. The company Web site said the athletic firm matches 100 percent on the first 5 percent an employee contributes, with the match in the form of company stock.
Even temporary and full-time staffing firm 24Seven offers its freelancers a variety of benefits, including a 401(k) match.
But how well do companies communicate with employees about the options?
At Coach, new hires attend an orientation meeting where they are given a review of the company’s benefits. After one year of service, the employee is sent an enrollment kit for the retirement plan, a spokeswoman said.
For follow-up communications, the employee is invited to quarterly educational meetings at the corporate office where Fidelity, the 401(k) plan provider, reviews it and gives a primer on the investment options. Fidelity also has a class on asset allocation on a quarterly basis, said the spokeswoman.
Bill Higley, vice president for human resources at Liz Claiborne Inc., said new hires are notified of all benefits and receive an enrollment kit from Fidelity when they are eligible to contribute. The firm provides a company match of 50 cents on every dollar up to 6 percent of salary.
“We [automatically] enroll every eligible employee with a 3 percent contribution from their paycheck into their account,” Higley said. “They have 45 days to waive automatic enrollment if they wish. It is an excellent tool and we encourage them to do it.”
The company also targets its communications to employees, suggesting options where appropriate and reminding them they can call Fidelity with questions.
“We began a program in January where we inform employees that their contribution [to the 401(k)] will be automatically increased each year, which employees can waive out,” Higley said.
The automatic increase rises to 4 percent from 3 percent, and up 1 percent thereafter annually until the 6 percent limit of the company match is reached.
Merrill’s Morrow said many firms can do better. “Once a year is not enough [contact] between company and employee,” he said. “Apparel and retail have people moving from firm to firm on a general basis.”