Saturday, October 05, 2013

How Employers Should Choose Retirement Plan Benefits

Retirement plans are an essential benefit that enhances the lives of current and future employees.

A valuable benefit for employees is offering a retirement plan. Choosing a retirement plan for employees should be based on your company's size, financial status, and the ability to comply with federal, state or local regulations and responsibilities. Evaluate the company’s needs and objectives and employee needs deciding what plans to offer. A good approach to selecting a retirement plan is to examine the advantages and disadvantages of the plan benefits, choices and company goals you wish to accomplish by offering retirement benefits for your employees. 

Consult a financial professional to help you choose a plan that's right for your company. There are several methods and employee benefit plans to choose from when providing for employee retirements needs.  

Retirement plans are a great benefit that impacts the lives of current and future employees. It is critical to understand the advantages and disadvantages of offering retirement plan benefits, the types of retirement plans offered and the goals or outcomes you want to achieve by offering retirement plan benefits.

Retirement plans encourage employees to save for retirement. Allowing employees to save for retirement through paycheck deduction allows employees to decide how much to contribute based on their investment style and retirement needs. Retirement plan benefits helps to retain employees and reduce employee turnover.

How Employers Should Choose

  • Consult a financial advisor prior to deciding on a plan or multiple plans
  • Take  into account the company’s needs as well as the employees’ concerns
  • Identify goals the company wishes to achieve and their ability to pursue those goals based on each plan's unique requirements
  • Identify plan costs and ease of administration – if economically effective
  • Examine may different types of plans, advantages and disadvantages of each, i.e. defined benefit, defined contribution or a plan that favors older, highly paid participants
  • If the plan requires IRS report filings other than employee W-2 forms
  • If there are plan limits or annual discrimination tests
  • If the plan can supplement your compensation package if your company has high start-up costs or little to no cash on hand
  • Consider plans that can be easily communicated and understood by plan participants
  • Identify plan tax benefits and deductions 
  • Evaluate plans that compensated strictly on a fee basis 
  • Assess plans that sell a product which are more advantageous for vendors who earn profits from each product sold
  • Review plans where investment risk and life expectancy risk born by the plan sponsor and their advantages
  • Determine if plans that offer survivor and disability coverage or guaranteed lifetime annuity is offered 
  • Determine if plans can be protected from creditors limiting fiduciary responsibility

How to Set Retirement Policies
In developing a policy for retirement plan a company should consider the following:

  • Purpose of the retirement plan
  • Company views regarding employer and employee responsibilities in preparing for retirement
  • Create guidelines for new employees for want to rollover a retirement plan
  • Availability of Social Security, retiree medical benefits, disability and survivor benefits, and supplemental Retirement Savings plans
  • Determine if you will offer matching contributions and the maximum matched
  • Costs, including the company’s ability to sustain plan payments and increase plan benefits over time
  • Cost predictability
  • Determine if you will offer vesting and time period when an employee becomes vested
  • Set time limit when employees have to enroll in a retirement plan
  • Set guidelines when employees can make changes to a retirement plan
  • Create a process for terminated employees
  • Examine labor market considerations such as recruitment and retention of employees, competitive environment, workforce mobility, and length of employee service
  • Review investment risk and control, including how investment risk is allocated between employer and employee
  • Create guidelines for borrowing against retirement accounts
  • Create guidelines for retirement account distributions such as annuities, joint and survivor, cash refund, fixed period, etc.
  • Create guidelines for participation: mandatory or voluntary participation 
  • Determine if the benefits department or retirement plan process will be outsourced or an in-house function

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