Building Custom Benefits to Retain Top Talent

Raffa Financial ServicesRaffa Financial Services on 09/05/2019

Competition for top talent in the Washington, DC market seems to remain at a fever pitch. As a result, many of our non-profit clients, as well as our for-profit corporate clients, have sought our advice on how to provide a strong benefit and compensation package. 

There are many factors that influence where a star employee chooses to work, but it’s safe to assume that great employers will offer challenge, growth potential, and a competitive salary.  When great candidates have choices, a cutting-edge benefits program can help companies stand out and recruit the quality employees they need. 

The landscape of compensation strategies is changing

Whether your goal is to find that fantastic new hire who will help your organization thrive or to reward those existing people who have been key to your organization’s success, employee benefits should definitely be part of your thought process. Unfortunately, many businesses don’t give their benefits strategy the importance it deserves.  

Most employers are painfully aware that their existing top employees are also the top prospects for competitors, but salary alone will not keep a great employee— especially if a competitor comes along with a higher salary.

Not all benefits are created equally

Today, ERISA and other employment regulations demand that employers provide benefits with virtual uniformity to all employees, but many employers would like to offer additional perks for certain segments of the workforce. Providing the exact same benefits to the most senior-level employees down to the newest entry-level hires just doesn’t feel quite right to many CEOs.   Unfortunately, regulations have focused so intently on parity that they don’t allow for variances.

For example, most would agree that a 401K plan, another qualified retirement plan, often serves as the foundation of a benefit package for senior staff. These plans serve the majority of employees quite well. However, in certain circumstance, they can send a discouraging message to top performers. 

A quick example

Let’s review two mythical employees named Bill and Bob, who are each 45 years old. Bill is an entry-level person without extraordinary skills or experience and has been given a salary of $50,000. Bob, on the other hand, is a proven and dedicated employee whose skills and results are widely sought after, and his salary is $250,000. Bob came in and immediately created great results for your organization.

Obviously, Bob’s salary reflects his value, but basic rules within a 401K dictate that the maximum either one of these employees can contribute to the plan is $18,000 per year. If we disregard potential future raises as well as increased contributions the 401K rules may allow them to make in years to come, the percentage of income each can replace in retirement via the 401K plan is dramatically different. If they both earn the identical rate of return of seven percent (not guaranteed) on their plan balances from age 45 to age 65, Bill will be able to replace over 100% of his income in retirement. The highly valuable employee (Bob) will only be able to replace 21% of his current income in retirement – even if he contributes the maximum amount allowed by law. 

There are plenty of studies that have tried to anticipate what percentage of income individuals will need in retirement. With many people having questions about the viability of Social Security and Medicare, the expected need varies between 70% and 100% of their full-time salary level. Perhaps it is easier to speculate whether an employee earning $250,000 would be happy about an employer-sponsored retirement plan which would only provide 21% of their salary (or $51,654) at retirement. Keep in mind that the distributions from 401K plans are also taxable. If we assume a 40% tax rate, that would leave only $30,992 of retirement income or just over 10% of their gross salary.

Employees are shopping

Today’s top talent is often aware of the options available, and they are using that knowledge to make career moves and decisions. Many want their income in retirement to replace 100% of their salary. Many also recognize the need for creative benefits that include more creative options regarding life insurance, long term care, and disability insurance.

Innovative benefits strategies will allow you to design plans that offer more attractive benefits, tax advantages, and the flexibility your organization needs. You may even be surprised at how affordable these options can be. 

Programs that provide all these appealing characteristics will often appear very complex initially. At Raffa, we are more than happy to walk you through the design and budget options to start the process. We’ll also make sure you have the tools and support you need to communicate the features, value, and thoughtful consideration you put into establishing these programs for your employees.

One of the more appealing aspects of custom benefit programs is that they can be specifically designed for a limited group of your choosing. They even allow different levels of benefits within the group receiving the plan. That way, you can reward your Bobs and Bills in a way that keeps them both happy— and feels right to you.


JIm Van Eperen.Raffa

Written by Jim Van Eperen, CLU, Vice President of Raffa Insurance Services

Jim has been recognized for his holistic approach in helping solve complex business planning needs within the context of personal financial goals. He has a passion for getting to know each of his individual clients and crafting custom solutions just for them.


Photo by iQoncept


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