Attracting and retaining a talented, committed workforce is crucial for employers. Our research shows that employees' attitudes toward their health and retirement benefits are correlated with their employment choices, as well as with their levels of commitment and engagement. Employers that are able to target their benefit package to attract and keep the employees they need to succeed gain a valuable competitive advantage.

This article examines the importance of benefits in giving employees reasons to join and stay with their employer, and the relationship to sustainable engagement. We also look at the effects of benefit cutbacks on workers' attitudes and behavior. This is the third in a series of three articles based on Towers Watson's 2013/2014 Global Benefit Attitudes Survey. The first article described employees' perceptions of financial security and retirement planning, and the second examined the value employees assign to various benefits and plan features.1

Retirement and health care continue to attract and retain employees

As we showed in "Retirement Security Tops List of Employee Concerns," retirement and health care programs are an important part of employees' rewards. Employees worry about rising health care costs and retirement security, and most look to their employer's benefits for solutions. Health care benefits have traditionally carried more weight than retirement benefits in terms of attraction and retention, but in this year's survey, the gap has almost completely closed.

The attraction value of both health and retirement benefits has tempered since peaking in 2011. Between 2011 and 2013, the percentage of employees who said their health care benefits attracted them to their job fell by 13 percentage points, and the number saying those benefits keep them at their job fell by eight percentage points (Figure 1). Similarly, fewer employees say their employer's retirement plan either attracted them to the job (six percentage point drop) or gives them a good reason to stick with their job (two percentage point drop).

Figure 1. Attraction and retention value of retirement and health care plans

Figure 1. Attraction and retention value of retirement and health care plans

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

DB plans have stronger attraction and retention effects

Many employees have strong feelings about retirement security, and one way of measuring their attitudes is to segment the workforce by retirement plan type. Workers who seek out companies that offer defined benefit (DB) plans and then feel strongly committed to those employers typically assign a high value to both retirement and health benefits, and their attitudes carry over into their behavior.

So retirement plan type matters when it comes to attraction and retention. Employees with a DB plan are nearly twice as likely as those with only a defined contribution (DC) plan to cite their retirement plan as an important reason for joining their company (Figure 2). The attraction value of DB plans has fallen slightly from its 2011 peak of 51%, but DB plan participants remain more likely — 68% in both 2011 and 2013 — to say their plan gives them a reason to stay with their employer (Figure 3).

Figure 2. Attraction value of retirement and health care programs by plan type

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Figure 2. Attraction value of retirement and health care programs by plan type

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

Figure 3. Retention value of retirement and health care programs by plan type

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Figure 3. Retention value of retirement and health care programs by plan type

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

Among workers with DB plans, the importance of the health care plan as a reason to join the employer is up from 2010 but down from the 2011 peak, when 52% cited the health plan as an important reason for joining the company. Both health and retirement benefits are most highly appreciated by workers whose employers offer DB plans.

Who values retirement benefits?

In addition to DB plan participants, mid- and late-career employees and higher earners are more likely to have been attracted to their company at least partly for its retirement program and to cite the plan as a reason to stay (Figure 4). There is an even stronger link between employees who are highly engaged, those who want to work for their current employer until retirement, and those who cite the retirement program as an important reason for joining and staying with the company. Effective retirement plans are clearly related to employees' emotional connection to their employer. In fact, 60% of employees who plan to work for their company until they retire also identify their retirement program as a very important reason for staying.

Figure 4. Attraction and retention value of retirement programs

Figure 4. Attraction and retention value of retirement programs

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

Appeal of retirement plans strongest for midcareer and older employees

A secure retirement appeals to workers of all ages, but the appeal is strongest among mid- and late-career employees, especially those with a DB plan. Between 2009 and 2013, the percentage of workers age 50 and older who cited their DB retirement plan as an important factor in accepting their job climbed 19 percentage points, compared with a one percentage point gain for employees with only a DC plan (Figure 5). Among midcareer workers, the upswings apply to both plan types, but sponsors of DB plans have a significant attraction advantage.

Figure 5. Attraction, retention and long-term career by age and retirement plan type

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Figure 5. Attraction, retention and long-term career plans by age and retirement plan type

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

Since our last survey, however, younger workers appear to have changed their minds about the importance of retirement programs, especially those working at companies with DB plans. The number of young workers who cite their retirement plan as a reason for accepting their job plummeted by 24 percentage points. While the reason for the abrupt drop-off is not clear, younger employees might have become more concerned about shrinking opportunities, as the effects of slow economic growth and delayed retirement among older workers trickle through the organization, and they increasingly settle for jobs they feel don't match their skill set or career goals. In fact, nearly half of younger workers (45%) cite opportunities for promotion and new skills as their top reason for taking their current job compared with only 20% of older workers.

Retirement plans remain persuasive retention tools, with the desire for long-term employment with their current employer strongest among DB participants of all ages. And regardless of plan type and age, retirement plans have become even more effective retention tools since 2009.

Nevertheless, in 2013, the percentage of younger participants regardless of program type who cited their retirement plan as a reason to stay declined from the 2011 peak, while there was a pronounced uptick for older employees with a DB plan. But the security of a generous retirement program lays the foundation for a strong, long-term relationship between employers and employees. In fact, 58% of younger employees with a DB plan say they would like to spend the rest of their career with their current employer compared with 39% of those with only a DC plan.

Attraction and retention value of hybrid plans

Many organizations with DB plans have transitioned from traditional to hybrid designs.2 Hybrid plans are defined benefit plans and accrue benefits under a fixed formula, but the benefit is typically defined as a lump-sum account balance rather than an age-65 annuity. While hybrid plans tend to be less generous than traditional designs, their ability to attract workers is comparable to traditional DB plans, with both having attraction values nearly twice that of DC-only environments (Figure 6). Hybrid plans are slightly less powerful than traditional DB plans in terms of retention, but, again, the security they offer generates greater retention value than DC-only programs by a wide margin.

Figure 6. Attraction, retention and long-term career by plan type

Figure 6. Attraction, retention and long-term career by plan type

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

Higher retention value for plans that meet employees' needs

Employees increasingly identify their employer-sponsored retirement program as the primary way they save for retirement (74%).3 While employer programs are generally designed to work in tandem with Social Security and personal savings, those that meet employees' expectations are more likely to create an enduring bond between employers and employees, especially those who identify their plan as a top reason for joining the company. Given heightened concerns about future retirement risks and a desire for more generous retirement programs, it's not surprising that nearly two-thirds (64%) of DB plan members say their plan meets their needs compared with 43% of DC-plan-only participants.

Employees who say their plan meets their needs are much more likely to intend to work for the company until they retire (Figure 7). Forty-nine percent of younger workers whose plans meet their needs intend to work for the employer until retirement versus 30% of younger workers whose plans don't meet their needs. Conversely, younger employees whose plans do not meet their needs are more than twice as likely to plan to leave their employer within the next two years. Older employees are even more sensitive to a plan not meeting their needs, but younger employees are more likely to intend to leave their employer overall or are more mobile.

Figure 7. Retention and long-term career by age and whether plan meets needs

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Figure 7. Retention and long-term career by age and whether plan meets needs

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

A retirement plan that fails to meet expectations can be a drag on employees' financial outlook. In fact, two-thirds of employees (65%) whose plans meet their needs are satisfied with their current financial situation, compared with only one-third (29%) whose plans do not meet expectations.

Furthermore, whether a plan meets employees' needs relates to their worries about both current and future finances, as well as their plans for retirement (Figure 8). Workers whose plans attracted them to their jobs but do not enable them to afford retirement must take some action, which usually means delaying retirement.4 Older employees who say their plan does not meet their needs are more than twice as likely to put off retirement until age 70 or later, or even give up on the idea of retiring at all.

Figure 8. Financial satisfaction of employees who were attracted by their retirement program by whether the plan meets their needs

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Figure 8. Financial satisfaction of employees who were attracted by their retirement program by whether the plan meets their needs

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

An important question is whether workers' financial worries get in the way of their engagement or job performance. Figures 9 and 10 show direct connections between whether a plan meets employees' needs, the emotional toll on employees if it doesn't and sustainable engagement, which is Towers Watson's measure of employee engagement. Sustainable engagement captures the intensity of an employee's connection to the employer through three core elements:

  • Being engaged — the extent of employees' discretionary effort applied to work goals
  • Being enabled — a work environment that provides the support and resources employees need to work efficiently and effectively, and removes barriers to success
  • Feeling energized — a work experience that promotes social connectedness and feelings of enthusiasm and accomplishment

Figure 9 shows a strong association between a retirement plan that meets employees' needs and higher levels of employee engagement. There is a payoff for helping employees take care of their financial future, especially among employees who considered the retirement plan an important reason for joining the employer. Among this group, employees who say their retirement plan meets their needs are five times more likely to be highly engaged than disengaged. Conversely, when the retirement program misses the mark, employees are much less engaged. In fact, among those who say their retirement plan fails to meet their needs, roughly equal numbers are highly engaged and disengaged. When overall productivity requires everyone on the team to pull their weight, there is an enormous difference between having five highly engaged employees for every disengaged employee and managing a team with a one-to-one ratio.

Figure 9. Sustainable engagement by whether retirement plan meets needs

Figure 9. Sustainable engagement by whether retirement plan meets needs

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

A retirement program that meets employees' expectations can alleviate long-term financial worries that might compete for employees' time and attention. Figure 10 shows an impressive 50 percentage point boost in the proportion of highly engaged employees, as well as fewer financial worries, among workers whose plans meet their needs. Where workers are worried about their finances, a retirement plan that meets their needs is strongly related to higher employee engagement. On the other hand, when workers are worried about their finances and the retirement plan does not meet their needs, the percentages of disengaged and highly engaged employees are equal.

Figure 10. Impact of plan adequacy and financial worries on engagement

Figure 10. Impact of plan adequacy and financial worries on engagement

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

While the retirement plan is unlikely to be the only factor creating this wedge in engagement, attitudes toward the plan certainly capture a broader set of employees' sentiments about their organization. Financial worries can distract workers from their jobs and enact a toll on their well-being and ultimately their job performance — and thus that of the organization.

Plan changes have broad impacts

In response to broader economic pressures, many employers have been cutting benefit costs. About one-quarter of employees with a retirement plan have witnessed changes to their plans,5

which most often reduce plan generosity, shift more financial risks to employees or both. How have these changes affected attraction and retention, employees' satisfaction with their financial situation, intent to stay until retirement and job performance?

To get some answers, we divided employees into five groups:6

  1. DB plan, no change: Currently earning benefits under a DB plan for each year of additional service and no significant changes to the plan over the last two years
  2. DB plan with change: Currently earning benefits under a DB plan for each year of additional service, and the plan underwent a significant change in the last two years, such as a redesign or benefit cut
  3. DC plan only, former DB: DB benefit accruals were frozen but employees have a DC plan
  4. DC only, no change: Have a DC plan that has not had a significant change in the last two years
  5. DC only with change: Have a DC plan that has undergone a significant change in the last two years, such as a redesign or cut to employer contributions

Changes to benefits can be disruptive. The importance of attraction and retention is slightly lower for DB plans that were recently frozen, compared with active plans, although scaled-back DB plans remain more effective than DC-only environments. While attraction and retention value is lowest for DC-only plans that have recently undergone cuts, nearly half of those plan participants still intend to work for their employer until they retire (Figure 11). An important question is whether this segment of the workforce is enthused about their career track and willing and able to go the distance.

Figure 11. Attraction, retention and long-term career following cutbacks to retirement plans

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Figure 11. Attraction, retention and long-term career following cutbacks to retirement plans

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

Employees whose plans have undergone cutbacks are much less satisfied with their current finances and more worried about their future finances, with DC plan members whose plans have been cut being the most concerned (Figure 12).

Figure 12. Financial satisfaction and worries by changes in retirement plan

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Figure 12. Financial satisfaction and worries by changes in retirement plan

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

While employees with a DB plan generally have the highest levels of financial satisfaction and the fewest financial worries, they are not immune from concerns about the future. In fact, workers whose DB plans recently underwent a change are the most worried, perhaps fearing the change is only the first of many. Two-thirds of participants in scaled-back DB plans fear further reductions lie ahead, and more than half worry about their benefits being frozen in the future. Only one-third of DB plan members whose plans remain intact are worried about future reductions in plan value, and slightly fewer fear their plan will be frozen altogether (31%).

Satisfaction with the retirement plan also takes a hit when the program changes. Conversely, employees whose plans haven't changed are the most satisfied and most likely to report their plan meets their needs. In fact, DC-only plan members are more satisfied with their plans than DB plan participants whose plans were recently scaled back or frozen. Eliminating a DB plan entirely is linked to a 15-to-20 percentage point drop in meeting employees' needs. What drag could this have on employee engagement?

Cutbacks to retirement plans often prompt employees to reevaluate their retirement prospects. Employees who fear they can't afford to retire must work longer, save more, live on less in retirement or some combination of the three. The vast majority of workers, particularly those who are older, identify working longer as their best option.7 Former DB plan members who now have only a DC plan are more than 30% more likely than those with an active DB plan to expect to work beyond age 65 (Figure 13). Although again, employees with only a DC plan whose employers recently reduced contributions expect the longest working careers: Nearly two-thirds of them (61%) plan to work beyond age 65 and 43% expect to work to age 70 or later (possibly never retiring).

Figure 13. At what age do you expect to retire?

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Figure 13. At what age do you expect to retire?

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

Cutbacks to retirement programs increase employees' concerns about their financial future and worries about retirement, which is negatively related to employee engagement. Again, workers who once had an active DB plan but were shifted into a DC-only environment and those with only a DC plan that recently reduced employer contributions report the highest levels of disengagement (Figure 14). In fact, workers with only a scaled-back DC plan are 20% more likely to be disengaged than highly engaged. Conversely, engagement is strong among DC-only members whose benefits have not been cut. Likewise, the security and generosity that employees covet from their DB programs — even when the program has been changed — are reflected in significantly higher engagement rates.

Figure 14. Impacts of plan change on sustainable engagement

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Figure 14. Impacts of plan change on sustainable engagement

Source: Towers Watson 2013/2014 Global Benefit Attitudes Survey – U.S.

Conclusion

As economic growth continues its plodding pace, many employers remain in an employment holding pattern. A slowdown in worker productivity growth over the last few years has further delayed hiring in many organizations. This period of sluggish growth and increased uncertainty has in some ways been a boon for organizations, many of which have successfully boosted their bottom lines by closely managing costs without the risk of unwanted turnover.

Many companies have been asking quite a lot from employees in recent years, including longer hours at work and more responsibilities, even in the face of smaller pay increases and greater uncertainty about their jobs. The toll is in employee stress and feelings of burnout, which are a growing challenge for many organizations.

In this uncertain environment, employees want more financial security in return for their greater efforts — a trend that solidified during the financial crisis in 2008/2009 and has remained strong ever since. And more secure rewards appeal to employees of all ages, although the appeal is strongest for midcareer and older workers.

Health and retirement benefits are part of the foundation of a secure reward package. Not only do employees want more generous and secure benefits, there is a clear link between better benefits and a company's ability to attract and retain employees. While retirement and health care plans generally have similar attraction and retention effects, more generous and secure retirement programs can create a stronger bond between employers and workers. This research shows that employers whose benefit programs meet employees' needs — particularly DB plans — enjoy a significant competitive advantage in attracting and retaining employees, especially employees with a long-term outlook who chose their employer at least partly to obtain this level of security. When such benefits are absent or the employer changes the deal, employees' financial worries often serve as a source of stress and distraction that can degrade employee engagement and productivity, which is ultimately a drag on company performance, perhaps even offsetting the direct savings from the change.

While more secure benefits are important, achieving the right balance with performance-based pay is critical for attracting, developing and retaining a talented workforce that provides a competitive edge. Companies should consider their rewards in terms of the appropriate mix between security for all and incentives that drive individual and team-based performance. With employees of all ages coveting more security, conventional approaches that segment employees by age or generation might overlook important differences and emerging trends in employee preferences that directly motivate behaviors. Employers need to tailor their rewards to suit their goals and continually improve performance management to measure and reward the behaviors needed to deliver on the business strategy. Those who find the right balance are in the best position to reduce human capital risk and increase the returns on their programs.

About the survey

Towers Watson's 2013/2014 Global Benefit Attitudes Survey is a nationally representative survey fielded in 12 countries.8 The U.S. survey includes 5,070 respondents employed by nongovernment organizations with 1,000 or more employees. It builds on several previous Towers Watson surveys to track evolving employee attitudes.

This article reflects responses from a subset of 4,248 retirement plan participants working full time. All respondents are provided a DB and/or DC retirement plan by their current employer. DB plan participants are those who currently participate in an active DB plan. Respondents with only a DC plan include both those who contribute to the plan and those who decline to participate. All results are weighted by age, gender and salary to the national average of similar workers.9


Endnotes

1. See the first two articles in this research series, "Workers Still Uneasy About Financial Security and Retirement," Towers Watson Insider, March 2014; and "Retirement Security Tops List of Employee Concerns," Towers Watson Insider, April 2014.

2. See Brendan McFarland, "Retirement Plans Offered by 2013 Fortune 100," Towers Watson Insider, November 2013.

3. See "Retirement Security Tops List of Employee Concerns," Towers Watson Insider, April 2014.

4. See "Workers Still Uneasy About Financial Security and Retirement," Towers Watson Insider, March 2014.

5. Changes to DB plans could be a significant design change, a reduction in generosity, or benefits being frozen and a switch to a DC-only environment. Changes to DC-only plans include modifications to the plan design or reduced employer contributions.

6. Distribution of responses by the five groups is: DB plan, no change, 15%; DB plan with change, 5%; DC plan only, former DB, 10%; DC plan only, no change, 60%; DC plan only with change, 10%.

7. See "Workers Still Uneasy About Financial Security and Retirement," Towers Watson Insider, March 2014.

8. Countries include Australia, Brazil, Canada, Chile, China, Germany, India, Japan, Mexico, Netherlands, the United Kingdom and the United States.

9. The margin of error is +/- 1.38% for the total sample.