OPTIONS PROVIDE FLEXIBILITY, HELP ATTRACT AND RETAIN THE BEST WORKERS.
Finding and keeping quality employees is critical for plumbing, heating, and cooling contractors who want to grow their businesses. No matter what strategic, marketing, or succession plans are in place for the company, the success of the business depends on having quality field and office personnel to provide services to customers.
While items such as salaries, work schedules, and workplace environment can attract employees, employers also need to offer an overall benefits package that is competitive with similar employers in the market, says William Roerden, financial adviser for Certified Financial Services and the primary contact for PHCC’s Multi-Employer 401(k) Program (see box on page 19). "Health insurance is the first benefit potential employees ask about, with the retirement plan coming in at a close second," he says.
The interest in a company’s retirement plan is often driven by the individual’s personal goals, age, financial status, and family situation. A young, single person is less likely to focus on retirement than someone in their middle years, but a retirement plan can prove to be an important retention tool as the employee watches their future retirement income grow.
"Over time, offerings of employer-funded traditional pensions, which are known as defined benefit plans that guarantee a set income for the rest of life at retirement, have changed," says Karen Brandon, an attorney with Ogletree Deakins, who was a featured speaker at a PHCCCONNECT2022 education session hosted by PHCC’s Union-Affiliated Contractors. "Non-union companies typically offer a 401(k) plan with employers matching employee contributions at rates defined in their plan." For example, an employer may match 50% of an employee’s contribution up to 6% of their compensation – or any other parameters identified in the plan documentation.
In a 401(k) plan, which is a defined contribution plan, employees have their own accounts and can make investment decisions about the funds – their contributions as well as employer contributions – within the parameters of the plan. If the employee leaves a company, the account can be rolled into another retirement account to follow the employee. These types of retirement plans only pay income to a retiree until the account balance runs out, unless an annuity contract from an insurer has been purchased.
Union-affiliated companies are more likely to offer traditional pension plans, but even some of those plans have changed. Union plans are funded by pooling money from union-affiliated companies, not individual employees, to pay pensions to retirees. Increasing numbers of retiring employees as baby boomers age out of the workforce has strained a number of plans. This, along with other factors that include poor investment returns and smaller workforces, which mean smaller payments from employers, have caused some pension funds to go bankrupt or to be taken over by the Pension Benefit Guaranty Corporation (PBGC), a federal government agency that provides insurance. While the PBGC can continue making payments, they can only be made up to a certain amount, which might be a smaller payment than what was promised by the pension plan.
Hybrid Plans Offer Additional Solution
One option that some unions as well as non-union employers that have only offered a defined benefit plan are pursuing is the hybrid retirement plan that offers components of both the defined benefit and defined contribution plans, says Brandon. An employer can convert the existing traditional plan, or freeze and terminate it, and offer a cash balance plan in which participants receive a set percentage of their yearly compensation plus interest charges. This type of plan is maintained on an individual account basis, much like a defined-contribution plan. The employer contributions to the account are based on average pay and increase with years of experience and if the investments do well. There is a floor benefit and a cap on interest, and a reserve created if the investments perform above the cap.
"Union-affiliated companies have less flexibility to convert their plans from defined benefit pension to a 401(k) plan, but some unions are moving to offer hybrid plans," says Brandon. It is difficult for many companies to withdraw from union plans due to a withdrawal liability in which they must pay their share of unfunded vested benefits. "Companies can negotiate with unions and their trustees, but they need to plan well in advance if they believe it is best for them to withdraw."
"Adding a hybrid arrangement to a traditional defined benefit plan is similar to refinancing a mortgage where you pay off the old loan with a new loan that is re-amortized with better terms," says Brandon. "I was skeptical of this approach at one time, but if you can get better terms and an additional influx of money, it makes sense for some employers."
Many employers in the p-h-c industry find that a safe harbor 401(k) plan makes sense for them. A safe harbor plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans, which makes it less cumbersome to manage. A key difference in the traditional and the safe harbor 401(k) plans is the vesting schedule that defines when an employee has access to funds contributed by the employer. With a safe harbor plan, employees are fully vested from the first day.
"I like vesting schedules because they do promote retention," says Roerden. "Employers who want to focus on retention with a 401(k) plan and a vesting schedule can use a third-party administrator and an adviser to handle the annual nondiscrimination tests."
The Value of Saving: Educating Employees
When Charles and Anthony Bracco’s father started Modern Plumbing Industries in 1975, he believed strongly in taking care of his employees and, as soon as he could afford to do so, offered a comprehensive, employer-paid health insurance benefit that attracted employees. In 1990, the PHCC member company located in Winter Springs, Florida, added a traditional, defined benefit retirement plan. "The original plan was a profit-sharing plan with a vesting period of six or seven years," says Charles Bracco, president of the company. About 20 years ago, the profit-sharing retirement plan was modified to include a 401(k) that is funded by employee contributions and company matches – 100% up to 3% of the individual’s salary and 50% of the next 2% of the salary. "It is a safe harbor plan, so all eligible employees were vested immediately," he adds.
Baxter Comfort Solutions is a fourth-generation heating and cooling company that began in 1928 and has 12 employees – two part-time and 10 full-time. "We offer a comprehensive benefits package that includes health insurance, long-term and short-term disability, a health savings account, and a 401(k) plan for retirement," says Karen DeJong, co-owner and office manager of the PHCC member company located in Baxter, Iowa. "We’ve offered the 401(k) for more than 10 years, and we match the employee’s contribution up to 3% of the salary."
All eligible employees – those who are full time – are participating in the retirement program, says DeJong. When onboarding new employees, it is important to educate them about the value of saving for retirement and taking advantage of the company match, she says. "Younger employees are familiar with 401(k) plans but are not that concerned about saving because, for them, retirement is a long way off," she says. "We explain how participating immediately will create savings that continues to grow and gives them a chance to get the company match, which is ‘free’ money for them."
For employers who are evaluating what they offer, DeJong recommends asking peers in a network group what they offer or checking with associations the company may belong to. "Setting up a retirement plan is not something you want to learn as you go along. Make sure you do it right at the start," she says. "It is harder for small businesses to set up a retirement plan along with other benefits, but you have to do it to be competitive as you recruit employees."
Using PHCC’s Multi-Employer 401(k) Program, Baxter Comfort Solutions was able to transfer its existing retirement program to a new plan and take advantage of group pricing.
If planning to make a change to the retirement plan, start by looking at your employee population’s age, whether or not you want a vesting schedule, if and how much you want to contribute, and other factors that can be used to tailor your plan to your company, says Roerden. "If a company is less than 100 employees, it is a good time to start now and take advantage of a 50% tax credit on start-up costs – up to $500 for the first three years of the plan."
"At the end of the day, some employees value a retirement program more than others depending on their preferences, but it’s important to take care of your employees to attract and retain the best," says Bracco. "Even with immediate vesting in the retirement plan, our company culture, family orientation, and total benefits package have contributed to retention. Most people stay with us, some of them more than 20 years."
When asked if he has advice for other company owners reviewing their retirement plans, Bracco says, "Do what you can do to help your employees, even if you’re a small company. Something is better than nothing."
PHCC’s Multi-Employer 401(k) Program
As a benefit to members, PHCC has partnered with Lincoln Financial, a nationally recognized leader in retirement planning services, along with trusted experts from Certified Financial Services, to develop a unique program that leverages the strengths of group participation to provide a cost-effective and easy way for you to implement a turnkey 401(k) employee program. For more information, testimonials from your fellow members, and contact information, visit phccweb.org/retirementprograms.
- BY SHERYL S. JACKSON
Sheryl S. Jackson is a freelance writer and editor who specializes in education, leadership and legislative topics for several industries, including construction.
