Do you offer retirement plan to offer competitive benefits in order to attract talent? The regulators, like the Department of Labor, think you or your company offer the to help your employees retire. Either way, once the decision was made to have one, other issues likely seeped into your decision-making. Are you one of the many companies that suspended matches and profit sharing? Had you sold employees on saving to get the match? This may have shifted the company’s focus away from helping employees retire.
Key non-retirement employer success factors-
The following represent some of the factors employers often site in judging their plan successful1:
- Ease of administration
- Simplified management
- Assistance with fiduciary obligations
- Employees understand and appreciate benefit
Unfortunately, the first three have little to do with employees retiring. They represent the other issues alluded to in the introductory paragraph. Unfortunately, you cannot use ease of administration as a defense against claims that you did not have the employees best interest in mind when you made selections of investments and providers. Theoretically if employees understand the plan that would use it more. How well are you doing with your employees on this quiz?
Key retirement plan success factors- employer
The following represent some of the retirement factors employers often site in judging their plan successful1:
- High participation rates
- High contribution rates
- Competitive investment returns
- Employees understand and appreciate benefit
How can you emphasize retirement in your retirement plan?
The 401(k) is often under appreciated. Research shows that savings is far more important than investment returns in building a balance. That in part is due to the lack of financial literacy and under deployed financial advice. Your 401(k) allows your employees to save more than they could into an IRA or SIMPLE Plan Let’s say that your employee needs to save 10% of their salary to replace 80% of their income through retirement. An employee that makes $50,000 per year can save that with an IRA. Employees that make as much as $180,000 can do that by their own savings. The match just sweetens the pot.
The 401(k) allows employees to benefit from systematic investing (dollar cost averaging). Unfortunately, too few people understand how this works.
If the retirement plan is managed according to investment fiduciary standards, your employees have the benefit of you looking out for their interest in selecting and monitoring providers, investments and plan features. The law allows you to vet and hire knowledgeable professionals to help you. I recommend you select financial professionals that act as a fiduciary to your plan. One’s that are familiar with the Save More Tomorrow Program can help you deploy features to emphasize employee savings. You can learn more about those choices here.
Do you answer yes to all of the questions below?
- Do your highly compensated employees maximize their contributions which could be as high as $23,000 in 2015?
- Are your female employees contributing a higher percent than their equivalent age and income male employees? According to research from EBRI they should be saving more to adjust for the higher balance they will need because of their higher longevity expectation.
- Do you survey your employees to see if they actually understand and appreciate the benefit? FINRA shows that 61% of Americans surveyed could not answer 3 out of 5 financial questions correctly. One of those dealt with inflation, a key risk for 401(k) savers.
- Do your employees view themselves as sophisticated investors? African American participants categorized themselves as savers vs. investors in a Prudential survey.
If you did not answer yes to all, your employees would benefit from advice. Financial professionals with the Chartered Retirement Planning Counselor or CERTIFIED FINANCIAL PLANNER PROFESSIONAL™ designations have the technical qualifications. They can also be investment fiduciaries.
What can the retirement plan do for you?
A December 2014 article from Society of Human Resources Management highlights the problem “When Workers Won’t Retire, Workforce Challenges Arise”. Acting now is a key to managing that issue in the future. The retirement plan also delivers short run benefits.
The retirement plan can not only boost your employees’ morale but also improve their short-term productivity. People who are not stressed about their finances can focus more on the task at hand. A study2 from Alliant Credit Union and The International Society of Certified Employee Benefit Specialists (ISCEBS) estimates $7000 per employee in reduced productivity per year. If you and your employees aren’t getting the benefits discussed in this blog, you owe it to them to find a fiduciary, retirement plan consultant that can get you on path.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations