The rise of microretirements presents both a challenge and an opportunity. How can businesses accommodate these career breaks without losing valuable talent or disrupting operations?
Microretirements, while still rare, are gaining traction as a new workplace benefit, especially among younger graduates. Nearly 80% of recent college graduates expressed interest in taking time off from paid work, signaling a shift in how younger generations view their career paths and work-life balance.[1] This trend is similar to the sabbatical some employers offer. Here’s what plan sponsors and employers should consider about microretirements.
Employers may see microretirements as a negative trend, shunning any mention of it. The idea isn’t necessarily new – in certain professions it’s common to take sabbaticals, and a lot of planning goes into that. It’s clear why employers and plan sponsors would shy away from offering this benefit. Employers may be concerned about continuity of work, profits, managing costs, overseeing administrative details of employee benefits such as health care and retirement plans, and employee turnover. However, there are ways to implement these types of programs that can benefit both parties.
It’s likely self-explanatory why employees are interested in microretirements: the opportunity to pursue personal avenues while coming back to a secure job. Short career breaks can be beneficial mentally and physically, helping avoid burnout and return to work with a new focus and motivation. Many employers sponsor employee sabbaticals or microretirements for employees to enhance career skills, such as opt for additional training or take on an extended work-related volunteer project. Those employers often adopt a sabbatical leave plan.[2]
Human resource leaders and attorneys recommend that employers considering adding microretirements consider following the path of those with sabbatical leave plans. They should consider drafting a clear, objective plan and process that can detail all the relevant aspects involved such as qualifying factors, payment, and length, among others. From a benefits perspective, crucial details would include whether the employer will continue to pay premiums on health care and retirement plans and how vesting could be affected by a sabbatical. The duration of a sabbatical will often put an employee outside the leave of absence aspects of the ACA.[3] Other critical issues may involve matching and contribution issues around 401(k) plans. “For example, in a 401(k) plan with a last day of the plan year allocation requirement for a company contribution, employees will want to know whether the contribution will be made if they are on sabbatical on the last day of the year. The governing benefit plan documents are unlikely to have addressed sabbaticals, so are probably silent on this issue.”[4]
Planning ahead for sabbaticals can offer a way for employees to take time off and ensure they have a job to return to – while providing employers a way to avoid burnout, leading to low performance and morale, and retain talented employees who return newly energized.
Employers can offer unpaid or paid sabbaticals.[5] Paid sabbaticals can also be appealing for employers; paid time off can help employers keep valued employees by providing them financial stability during their break. With paid time off, employees are less likely to seek employment elsewhere. Unpaid sabbaticals provide more flexibility for the employer yet may result in employees who are more likely to look for a new job while on leave.
One of the most essential elements of a successful sabbatical program is planning a smooth transition both before and after the break. This means creating effective on-ramping and off-ramping processes that support employees and the business. Before employees leave for a sabbatical, it’s important to create a clear plan for how their responsibilities will be managed in their absence. Training other team members, spreading out tasks, or even hiring temporary replacements can help the employer continue to move business forward while valuable employees are out.
Employees stay with employers who treat them well. Employees who have taken extended time to care for themselves are more likely to stay with a company that supports their need for work-life balance. This helps employers keep talented workers who might otherwise leave to pursue other job opportunities. Sabbaticals can also help reduce burnout and stress, leading to happier, healthier employees who have better capacity to perform their jobs when they return. But before a plan sponsor or employer considers adding a sabbatical to their benefits portfolio, they should meet with counsel and compliance committees to create a clear, nondiscriminatory plan that works with their health care and retirement plan documents.
[1] https://www.wsj.com/personal-finance/mini-retirements-career-breaks-travel-volunteer-ab5ce6f3
[2] https://www.indeed.com/hire/c/info/what-is-a-sabbatical-leave-policy
[5] According to the Society for Human Resource Management (SHRM), about 4-6% of employers offer paid sabbaticals, and another 8% offer unpaid sabbaticals. https://www.shrm.org/topics-tools/news/benefits-compensation/sabbaticals-solution-to-employee-burnout; https://www.shrm.org/topics-tools/news/hr-magazine/sabbaticals-pay
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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