Many employers think that cash is king when it comes to employee compensation; however, with increasing healthcare costs and uncertainty over the future of social security income, employees are placing a bigger emphasis on employer-provided benefits. While many companies focus on providing competitive healthcare options to their employees, the company retirement plan is often overlooked once it has been established.
Recent studies have shown that employees are increasingly concerned about having enough income during retirement. According to the Towers Watson 2013/2014 Global Benefits Attitude Study, 62% of employees would give up some pay for a guaranteed retirement benefit and more than half of employees would sacrifice pay for a more generous retirement benefit. Employer-sponsored retirement plans (typically 401k plans) are the primary savings vehicle for many employees which means they can be a valuable recruiting and retention tool.
It all starts with the design of a 401(k) plan. Setting up the plan-specific options such as employer contributions, vesting schedules, employee eligibility and distribution options play a big part in how competitive your plan will be. Optimizing the plan design helps employers achieve specific goals such as:
- Maximizing contributions for key employees or owners
- Incentivizing employees to save more for retirement
- Retaining employees
- Providing tax deductions for the company
It is extremely important to weigh the pros and cons of the various design options to ensure that the overall plan is on par with competitors.
In order to navigate the complexities of the plan design options available to their plan, employers should work with specialized experts that understand how the various alternatives will affect the company. Daily plan operations, tax implications and the effect on the employer contribution are some of the key areas to consider. Partnering with a strong Third Party Administrator (TPA) or an Investment Advisor that has developed expertise in working with retirement plans can go a long way toward re-designing your plan to attract and retain top talent while maximizing tax benefits for the company.
For more information on the importance of a retirement service provider, download our ebook, “The Value of a Retirement Plan Advisor.”
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