Retirement benefits are considered a valuable perk by most employees. Although they are not mandatory under the Employee Retirement Income Security Act (ERISA), many companies offer employer contributions to help staff members plan for retirement.
But if a company doesn’t currently offer retirement benefits, when is the right time to add them to the benefits package? How does the company go about accomplishing this? Further, what are the pros and cons of offering retirement plan benefits and what choices does a business have?
According to a joint retirement study by Merrill Lynch and Age Wave, 81 percent of Americans don’t know how much money they will need for retirement. The same report advised the average life expectancy of American men and women has reached 80 years of age (up from the mid-60s in 1950), but people are opting to retire sooner, often at age 63 (down from 70). This means that anyone hoping to retire on time needs to be saving at least a quarter of their earned income and take advantage of employer matching when possible. Even a simple retirement plan can help employees plan for the future!
When Is the Right Time to Add a Retirement Plan to the Benefits Package?
Retirement benefits can be added to an employee benefits package at any time, but it may be prudent to wait until the annual budgets are completed and funds can be established to start matching employee contributions. As a primer, individuals can be instructed on how to sign up, how much they can contribute and up to what percentage the company will match contributions. Plans that go into effect in January are best because they coincide with yearly tax reporting.
Tips for Including a Retirement Plan
There are several ways you can add a generous retirement program to your organization’s current employee benefits. Here are a few helpful tips.
- Establish the most useful plan for your colleagues’ needs that still meets ERISA requirements. That’s right, ERISA has certain guidelines that all participating employers must follow. This covers employee eligibility, access to detailed plan information, regular statements of activity, beneficiaries and the option for employees to increase or decrease their contributions at any time.
- Create a payroll account that will be used solely for contributions. All companies must start an account that is strictly for retirement funds. Employers and employees make their defined contributions and then the company sends a premium check to the plan administrator.
- Host educational sessions for employees with the plan administrator. It’s critical to make sure employees understand what the new retirement benefit means to them, how to participate and what to do if they already have an account from a previous employer. You can also use this time to educate employees on other aspects of financial management. Doing so can provide a solid ROI for your business. The PwC 2018 Employee Financial Wellness Survey indicates that 47 percent of workers spend three (or more) hours of every work week thinking about or dealing with financial matters.
The Pros and Cons of Offering Retirement Plan Benefits
Offering retirement benefits to employees can significantly enhance your company’s total compensation package. This is especially important as industries continue to compete for talent and strive to attract the best employees. Best of all, empowering staff to become more financially responsible is one of the “side-effects” of saving for retirement. This can often spur employees to get all their finances in order, which typically helps relieve stress and make them more productive.
The only potential negative to introducing new retirement benefits is the time it takes to set up a plan. However, this can be managed by working with a plan administrator that also provides other benefits like dental insurance, life insurance and more.
The Best Plans for Small Businesses
The plans that are most suited for small businesses include Simplified Employee Pension Individual Retirement Arrangements (SEP IRAs) for companies with three to five employees—companies with eight or more employees can start a traditional 401(k) plan. Large companies typically have more options available to them, and some employers may decide to fund some of their retirement plans with profit shares. No matter your organization’s plan of choice, your fellow employees will appreciate your effort to add retirement benefits to their total compensation package as they begin planning for the future.
Looking for more tools and resources to help your employees manage their benefits? Check out the Employer Toolkit on United Concordia Dental’s website.