Companies Offer Immediate Eligibility for Retirement Deferrals to Attract Workers

Employers have reevaluated their retirement plan designs with an eye toward making it easier for employees to join plans and start saving, according to new Vanguard Group data.

For Vanguard recordkeeper plans, 72% of employers permitted immediate eligibility of deferrals in 2021, compared to 58% in 2012, according to the research paper, The Changing Workforce: How employer plans can help attract and retain employees.

“Many plans are offering immediate eligibility, but it’s still something that some plans don’t offer,” says Dave Stinnett, a principal and head of strategic retirement consulting at Vanguard. “With workers changing jobs more frequently, it’s really important to reduce the time where a worker is held back from starting to save.”

Economic growth and employment markets favoring workers have driven employers to increase immediate eligibility as companies seek ways to differentiate themselves from competing employers on the basis of benefits, says Stinnett.

Greg Adams, a consultant at Fiducient Advisors, says in a tight labor market, employers always want a way to stand out. “If somebody can start contributing to their plan right away, they’re going to prefer that employer; if they’re going to get the employer contribution right away, they’re going to prefer that employer,” Adams adds.

Although not every Vanguard plan permits immediate eligibility for employee deferrals, 86% of plans allow for entry within three months of employment, according to the data.

Companies are sharpening their retirement benefits to ensure the total compensation package and benefits are competitive with similar companies, the Vanguard research paper stated.

In 2021, 95% of Vanguard retirement plans included a matching contribution, a nonmatching contribution or a combination, the data showed. Within that large group offering contributions, 85% offered an employer matching contribution, 46% a nonmatching contribution and 36% offered both types of employer contributions, according to the paper. 

Employer contributions comprised about 40% of total retirement savings, the paper finds.

Employer contributions are “a very critical part of the overall savings picture,” says Stinnett. “[Employers are] not only getting people in quickly through immediate eligibility and automatic enrollment and high defaults, but you want to make sure that you have a good company match component as well.”

Employers that offer a matching contribution to workers can have a competitive advantage, adds David Macchia, CEO of Wealth2k.  

“Combined with auto-enrollment, advice and larger matches, employers are adding another dimension to their overall value propositions as they seek to retain and attract topflight employees,” Macchia says.

The Vanguard research was written by internal staff Shelly Preston, senior ERISA consultant; Michael Palumbo, application engineer; Wendy Tyson, manager of strategic retirement consulting; and Jeffrey W. Clark, senior research analyst.

The research paper pulled from information for the period covered in the Vanguard 2022 How America Saves data. The sample size included 5 million participants in 1,700 retirement plans over 10 years.