The Kern Business Journal
December 7, 2013
Once upon a time – actually, not that many years ago – employees accumulated their retirement savings by paying down on the mortgages of their homes, putting their money in savings accounts, buying bonds and life insurance, and working for companies with defined-benefit pension plans.
Today, most retirement funds sit in company-sponsored, tax-deferred savings plans, such 401(k) plans, which feature automatic employee contributions that are matched by employer contributions. While defined-benefit pension plans still exist, they are not as common. And with the ups and downs of the real estate market, good luck depending on a paid-up mortgage to lay the retirement nest egg.
As a result, an increasing number of Americans are looking to their employers for help in creating a secure retirement.
According to this year’s “Workplace Benefits Report” from Bank of America Merrill Lynch, more than 70 percent of the 1,000 individuals surveyed say that the amount in their company retirement plan will be either their largest or second-largest source of retirement income.
But with the U.S. economy still struggling to find a firm footing, many employers have focused on cutting costs. They have trimmed their work forces, held the line on pay increases and reduced worker benefits.
Despite the desire to make these short-term cost reductions, employers should continue providing retirement plans because they are “good investments” — for both employees and companies.
Offering retirement benefits has pros and cons for employers.
- Congress has created tax advantages for companies that encourage employees to save for retirement.
- Retirement benefits can help recruit and retain skilled employees.
- Retirement benefits can substitute for wage increases.
- Plans based on company profits can provide employee motivation and improve productivity.
- Company owners and managers can participate and save for their own retirements.
- Establishing and managing a plan can be complicated and time-consuming.
- Generally, professional assistance is required.
A quality retirement plan can actually reduce a company’s “real costs” by easing aging baby boomer employees out of the work force and into retirement.
Bombarded by the economic impacts of the Great Recession of 2008-09, an increasing number of baby boomers say they plan to delay their retirements. While these workers have years of experience and most often enhance a company’s productivity, their retention comes with costs: health care costs may be higher; wages usually are on the “high side;” and the development of new talent can be hampered.
If an effective “exit strategy” can be arranged, both the retiring employee and the company can benefit.
To structure and promote a “quality retirement plan,” consider these steps:
Communicate the benefits. Explain how the plan operates. But also explain why employees should contribute money into the plan. Make the plan about the employees. Explain how participating will help them.
Provide a sense of control. Give investment options and provide worksite investment training to employees. This likely will require bringing in an outside financial advisor to conduct seminars.
Make it easy. Set up an automatic enrollment system. Make it easy for employees to contribute and to manage their accounts.
Promote company benefits. Explain the retirement plan in terms of the company’s overall benefits program, which may include such things as wage incentives, medical benefits, flex time and wellness initiatives.