We have all heard the phrase before. “Millennials don’t (insert grumpy old man comment) like we used to.” Yes. It’s true. Times change. When Grandpa Reginald was a child, his elders complained to him about how using the telephone has made him lazy and ruined his communication skills. One complaint that I want to look closer at today is, “Millennials have no respect for the companies that hire them. They just move from job to job without any gratitude.” That is true. People switch jobs much more often today than they did 30 years ago. But why do people move jobs so much now? There are a variety of reasons that experts cite for this new change, but I want to focus on one I don’t hear people talk about as much…pensions.
There are two groups of retirement plans; defined benefit plans and defined contribution plans. Pensions are considered defined benefit plans because companies put money in the plan for employees. Defined contribution plans include 401(k) plans, 403(b) plans, and others where the employee is responsible for contributing the majority of the money.
Pensions are great. You work for a company for 35 years until you are ready to retire. Upon retirement, you receive a monthly payment until you pass away. Unless the company or government entity that you worked for goes bankrupt, you are guaranteed that money each month. Some pensions will even pay a portion to your spouse after your death.
So what does that have to do with the millennial generation? Pensions are virtually nonexistent now. It is highly unlikely that your company offers a pension unless you work for the government. Because of the high cost of pensions, most companies have switched to 401(k) plans where the employees are primarily responsible for retirement savings. One aspect of a 401(k) is that you get to keep the money you put in and any vested amount from your employer if you leave the job.
Companies have lost a major perk for employees to stay with them for the long term. Raises and promotions are nice, but a 3% raise doesn’t compare to a possible 10-20% jump if you switch companies and move to a higher position. Plus, you are now able to take your retirement account with you when you leave.
Regardless of your view of this new generation, remember that everyone responds to incentives. Many Millennials have lost the financial incentive to stay at one company for an entire career. So why not try out that new job at a different company, what do they have to lose?
Mike Zeiter, CPA/PFS