Helping Ex-Employees Prepare For The Future

There are many employees who when they leave their job, take a lump sum distribution from their 401(k) accounts. How can an employer help transient employees prepare for the future?According to the January Current Population Survey (CPS) from the US Census Bureau, as cited in an Employee Benefits Research Institute (EBRI) issue brief, Trends in Employee Tenure, 1983-2018, February 28, 2019, over the past 35 years, a five-year employment tenure is about average number of years an employee stays at their job.

It seems the idea of holding one job for an entire career is a bit of a myth. The EBRI brief also points out that changing jobs (or even careers) every five years could have a negative impact on retirements. Shorter tenures may result in a lack ofdefined benefit plan vesting (when a defined benefit plan is even offered), reduced defined contribution savings, and lump sum payments at times of job changes.

While you may not be able to keep employees longer, you may be able to impact their savings and withdrawal decisions, thereby improving their future retirement prospects. First, implement regular and high-quality financial education, including specifics about the retirement plan. And second, enlist longer-term employees who do understand the plan to help give “on the ground” information to newer employees. Read the EBRI issue brief here, EBRI-IB-83-18.