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

Retirement and You

Last week was designated as National Savings Retirement Week to help bring awareness to the need to plan for retirement. Many Americans still do not save enough for retirement and some do understand the importance of saving for retirement.

According to a 2009 EBRI a study of employees: 43% of workers said they have less than $10,000 in savings, while 27% of workers said they had less than $1,000. According to the FDIC: 97% of Americans will be dependent to some degree on family, friends or the government in retirement; a 65 year-old couple retiring today has a 63% chance that one of them will live to 90 years old; a 65 year-old couple retiring today will need approximately $240,000 to cover just medical expenses even with Medicare assistance.

You will need at least 60-70% of your salary during retirement. You should plan to save enough in your retirement account to cover living expenses for at least 20 years. Here is a retirement checklist to use when saving for retirement.

1. Do you have a retirement account?
2. Have you contacted a professional to map out your retirement plan and goals?
3. Do you know your retirement account balance?
4. Do you check your quarterly retirement statement?
5. Is your retirement portfolio diversified?
6. Do you know where you will live, what age you want to retire and the lifestyle you want to live during retirement?
7. Have you determined what costly expenses you will need during retirement (healthcare, prescriptions, etc.)?
8. Have you created an estimated budget for retirement?
9. Will you have enough life, health, disability and long-term care insurance?
10. Do you plan to pay off your mortgage and any other large debts prior to retirement? If not, how do you plan to pay for those expenses?
11. Do you want to be fully retired or work part-time?
12. Will you be eligible for social security when you retire?
13. Is your beneficiary information is up-to-date?

Here are 6 ways to help you prepare for retirement and increase your retirement savings.

a) Don't panic. Don’t make decisions based on emotions or get overwhelmed by the media, fear, anxiety and nervousness of those around you. Stay calm and follow the plan you have setup with your financial planner. Don't torture yourself by checking the stock market everyday or checking your retirement account balance every week or every month.

b) Review. Review your financial goals with your financial planner at least once a year to ensure you are on track to meet your goals. Also, check your statement for any errors and notify your financial planner immediately.

c) Time. Your money cannot grow if you take it out too soon. It takes a minimum of 7 years to see a significant return on your investment so leave your money in your account.

d) Diversify. If you have all of your investment in one area, re-allocate your investments to at least 3 areas to minimize losses.

e)DRIPs. To offset any losses you may have experienced you can purchase a Dividend Reinvestment Plan (DRIP) or use it as an easy way to start investing.

f) Buy now. The motto is "buy low, sell high" is very appropriate during a recession. This is a great time to buy stocks or to invest in a mutual fund. When the market bounces back you will have achieved great gains.

IRA Changes in 2010

To plan for retirement you should begin contributing to an IRA when you begin working your first job. However, it is never too early to plan for retirement; you can open an account prior to 18 years old.

You should contribute 10-20% of your total monthly income to savings and retirement to ensure you have enough money to cover your monthly expenses during your retirement years. When you retire you will need at least 60% of your yearly salary to cover your monthly expenses.

An Individual Retirement Account (IRA) or traditional IRA is a personal savings plan which allows you to put money aside for retirement and provides tax benefits. You may eligible to deduct a portion or all of your contributions to your IRA and may be eligible for a tax credit equal to a percentage of your contribution.

Money in your IRA is not taxed until the money is distributed to you. IRA's cannot be owned jointly. To contribute to an IRA you must be under age 70 1/2 at the end of the tax year.

A Roth IRA is personal savings plan that follows the same rules of a traditional IRA but you cannot deduct contributions to a Roth IRA. However, the initial contribution is taxed but future distributions are tax free.

Contributions can be made to your Roth IRA after you reach age 70½ and you can leave money in your Roth IRA as long as you live. There are limits on the amount that can be contributed yearly to a Roth IRA.

Starting in 2010, you can convert a traditional IRA to a Roth IRA. Anyone can convert as much of their qualifying retirement accounts into a Roth IRA as they like. For conversions in 2010, conversion taxes can be spread over two years: 2010 and 2011.

For conversions after 2010, taxpayers will have to pay the full tax due. Married couples filing a separate return can now convert or rollover amounts to a Roth IRA. Contributions can be made to your Roth IRA regardless of your age. Once you're 59 1/2, funds can be withdrawn whenever you like.

Talk to a financial advisor before you make any changes to your IRA to ensure conversion to a Roth IRA is the best decision for you.