Pensions Aid Recruiting, Retention

A recent survey finds that employees and job candidates are much more attracted to employers with defined-benefit plans than those without such a benefit. HR leaders should consider highlighting their DB plans as a way to attract and retain top talent, now that the recession has made many workers fear they won't be able to live comfortably in retirement.

By Jared Shelly

A casual dress code. Flex-time. An on-site gym. A comprehensive wellness program. Companies use plenty of tools to attract and retain talented workers -- and they aren't afraid to let job applicants and employees know just how special certain workplace perks can be.

There's one more enticement to add to that list: defined-benefit retirement plans.

Since the economic downturn led to 401(k) balances tumbling, DB plans are looking more and more generous -- and workers have taken notice.

A recently released Towers Watson Retirement Attitudes survey shows that 60 percent of new employees (less than two years of service) at companies offering pension plans cited the retirement program as an important reason for choosing to work there.

That's up from 27 percent in 2009.

DB plans are also increasing retention rates, according to the roughly 9,000 employees surveyed, as 72 percent of employees with such plans cited them as an important reason they plan to stay with their employer, up from 51 percent in 2009.

Defined-contribution plans were much less of a draw. Just 20 percent of new employees in 2010 said 401(k)s played role in their decision to work for their company. Retention, at 26 percent, wasn't much better.

Employees have always loved DB plans, but the extra love they're showing these days is perhaps due to the recession, which has shown employees that getting a benefit check for the rest of their lives after retirement can be a great way to steer clear of uncertain times and market volatility.

"Since the financial meltdown and recovery, risk has become important for everybody," says David Speier, a senior retirement consultant at New York-based Towers Watson. "Individuals are concerned about risk as much as employers are. ... A DB plan insulates you from risk because it gives you a steady stream of income over your lifetime and protects you from investment volatility."

Even younger workers -- who historically rank other employment aspects far above retirement benefits -- are seeing more value in pension plans. In the study, 43 percent of workers under 40 cited DB plans as an important reason they work for their current employer -- up from 28 percent last year.

Of course, offering DBs is expensive, and the economy has forced some companies to make some changes. Nearly one-third (32 percent) have closed their programs to new hires, while 14 percent froze them for all employees, according to a separate study by Towers Watson and Forbes Insights.

But the ones that can afford to continue such a benefit will certainly see advantages.

"If you have one and you're willing to keep it, this study says you should advertise it because people like them," says Speier. "If you're going to make the investment and take the risk as an employer, I think you have a real opportunity to attract people because this is a differentiator."

That just might come in handy as baby boomers retire and companies find themselves once again looking for top talent, says Ethan Kra, senior partner and chief actuary at Mercer in New York.

The exodus of boomers will leave a shortage of older, talented workers -- which is similar to the demographic shift in the 1960s and '70s, when companies originally made widespread use of DB plans.

"If you have businesses that cannot offshore and must find U.S.-sourced workers and require experienced, knowledge workers [who have a grasp of] corporate history and know-how, they'll need DB plans," says Kra.

The need will be greatest in industries such as coal mining, oil drilling, atomic energy, defense contractors and nursing, he says.

And it can be the difference between attracting a top candidate and losing them to another company.

" feel that if they don't have it and somebody else does, it's a major differentiator," says Kra. "They can make up for it with cash or other things but it can be expensive, and someone in their late 40s [the typical high-knowledge employee], is worried about long-term security."

He predicts companies will eventually offer a "skinny-down" version of DB plans, perhaps a 1-percent average pay plan rather than a 2-percent plan.

"The company recognizes it's a costly benefit, so they give a little less of it and employees will appreciate it that much more," he says.

Speier says that, right now, DB plans are simply too expensive for many companies, but they have to weigh those costs against the cost of failing to attract and retain top talent.

"If I'm an HR executive, and I believe [offering a DB plan] matters, and I believe it's worth fighting for, this is some data that can say, 'Hey, this is something that will matter to our people and we can differentiate ourselves with it,' " he says.