PepsiCo Canada is baking flexibility into its retirement savings benefits to support employees’ financial security amid the rising cost of living.
To help employees reach their retirement savings goal, the food and beverage company is matching employees’ bonuses up to 3.5 per cent, with the employer contribution automatically directed into their defined contribution pension plan. The move was part of the organization’s overhaul of its benefits package in 2022 to make its offerings more competitive, flexible and inclusive.
In addition, employees receive access to a registered retirement savings plan and a tax-free savings account. Although employees are automatically enrolled in the DC pension plan, they can direct their contributions to any one of the company’s three savings plans.
Read: 45% of U.S. DC plan sponsors considering adding emergency savings options in 2024: survey
The organization designed its savings program to best ensure employees are able to build financial security for retirement as well as in everyday life, says Jaye Calder, manager of pension, benefits and wellness at PepsiCo Canada.
When saving for the future, every bit counts, she adds, which is why the company also provides employees with core contributions to its DC plan, which is a percentage based on their age and years of service.
The road to holistic health
According to a recent survey by the Financial Services Regulatory Authority of Ontario, a majority (81 per cent) of people are now more concerned about paying for basic necessities — such as groceries, rent and their mortgage — than saving for retirement. Notably, more than two-fifths (44 per cent) of respondents said the high cost of living is preventing them from beginning to save for retirement.
How employer matching supports employees’ retirement readiness
Employer-sponsored retirement plans that offer matching contributions can help younger workers retire earlier and with more money, according to a recent report by Mercer Canada.
The report based its findings on a sample worker aged 30 earning $70,000 and with $30,000 of personal debt, using 5% of their income to either pay down debt or save for retirement during a time when the interest rate on their debt is higher than the expected rate of returns of their investments.
It found that if the employee had access to a workplace retirement plan with a 100% employer match, they could retire with an additional $250,000 in retirement savings at age 65 if they focused on paying off debt instead of retirement savings from age 30.
Without a 100% employer match, they could still retire with $125,000 more in savings if they focused entirely on paying off debt within 10 years before shifting their focus to saving for retirement.
Alternatively, if that individual chose to split their disposable income between saving for retirement and paying down debt for the entire period until retirement at age 65, it could take more than 3x as long to pay down the debt.
Yet, financial wellness is often overlooked by employers when developing their well-being strategies.
“We know from surveys that group retirement [savings plans are] equally as important as other [well-being benefits],” says Ivy Tsang, a senior consultant in retirement and investments at Baynes & White Inc., noting employers are increasingly recognizing their staff need help and are exploring ways to help alleviate their strain.
PepsiCo Canada approaches employee well-being through a holistic lens that includes three ‘healthy living pillars’ — physical health, healthy minds and healthy money. “Any issue for employees that [is] causing major stress is something [that employers] should be concerned with and inflation is not exempt from that,” says Calder. “There’s no golden egg that will resolve everything, but it’s important to help employees take steps in the right direction.”
As part of its healthy money pillar, the organization introduced a digital financial education platform that provides snackable, on-demand education and interactive money management tools for employees and their families and includes personalized and targeted communications. The platform complements the company’s one-on-one financial counselling program.
Read: RBC educating employees, reducing stigma around money matters through financial wellness hub
“We pride ourselves in leading in the total well-being [space],” she says. “We believe that financial well-being can enhance [individuals’] overall wellness. That means they’re not stressed about money and can cope with unexpected expenses. Our goal is to help employees reach high levels of financial well-being by providing that robust healthy money program.”
Meeting employees where they’re at
The adage that younger workers aren’t interested in saving for the future no longer rings true, says Tsang, noting the current economic challenges have only increased these workers’ awareness of the value of saving for retirement.
According to a recent survey by Sun Life Financial Inc., a majority of generation Z (81 per cent) and millennial (76 per cent) workers said they’ve increased their focus on financial security, compared to just 61 per cent of those from generation X and baby boomers.
Retirement savings options can also support talent attraction and retention. Indeed, a recent survey by Voya Financial Inc. found six in 10 (60 per cent) U.S. employees said they were more likely to stay at their current job if their employer offers a retirement savings plan.
That’s why it’s important for employers to offer a diverse slate of savings tools and financial education programs that meet people where they’re at in life, she adds.
PepsiCo’s savings program “provides employees with the best of both worlds” by allowing employees to contribute to the group TFSA for a large purchase like a vacation or a home or toward the group RRSP for tax-sheltering purposes, while the company’s contribution to the DC pension plan helps them build retirement savings, says Calder.
As a result of this flexible approach, the company’s younger workers are expressing increasing interest in financial well-being and many of these employees have taken advantage of the one-on-one financial counselling program.
The flexibility of PepsiCo’s savings program also allows the company to more effectively communicate it to employees, she says. “We offer three [savings] vehicles and the flexibility of where [employees can direct their money] makes it a lot easier to communicate and build passion and excitement around [a topic] that, let’s be honest, historically doesn’t get anyone excited.”
Lauren Bailey is the interim managing editor of Benefits Canada and the Canadian Investment Review.