Employee Benefits Retirement Plan

Saturday, February 10, 2024 18:05 Posted by Admin
Employee Benefit Retirement Plans

Employee Retirement Plan: We Can Help You Find the Balance Between Benefits and Value

Deciding to offer your employees a benefit retirement plan is a smart strategy. It’s an essential step in taking care of one of your most valuable assets: your employees. Working the details of this endeavor and deciding which type of plan will for both your workers and your business best can be quite the challenge.

That’s where we can help.

At Taylor Benefits Insurance Agency, we’ve been in this business for over three decades now and we know all the ins and outs of writing employee benefit plans.

Get in touch with us for a free consultation.  Together, we can find the best plan for your company.

Call us today at 800-903-6066!

Retirement Benefit Plans 101: What You Need to Know

While a competitive salary, flexible hours, health insurance, and other perks can make your small business appealing to potential employees, workers nowadays are thinking long-term too. A lot of them will also look at the retirement plan the company has to offer, and base their decision to take the job offer on that. Employers, on the other side, have the responsibility to choose a retirement plan for their staff and ensure that they will get the minimum amount during your golden years.

The information out there regarding retirement plans can be overwhelming and complex. To make things a bit easier for you, we’ll take a close look at the main types of retirement plans and focus on employee benefit retirement plans, their advantages and disadvantages and how they compare to other retirement plans.

  • Defined Benefit Plan Vs. Contribution Plan

There are two main categories when it comes to retirement plans sponsored an employer: the defined benefit plans and defined contributions plans. The main difference between these two is who will be responsible for the administration of the plan and who bears the risks of the investment.

  • Defined Benefit Plan

A type of plan that seems to be chosen less and less by companies, a defined benefit plan is, as its name suggests, a plan with a guaranteed benefit amount calculated based on the employee’s salary and years of service. This puts the responsibility of the investment entirely on the employer, who is expected to cover any losses caused by poor investment.

The reason why you may not want to go with this type of plan anymore is that its administrative costs are significantly higher compared to a contributions plan. At this moment, only about 17% of workers in the private sector have access to such a plan, according to the 2018 National Compensation Survey conducted by the Bureau of Labor Statistics.

  • Defined Contributions Plan

Today, the defined contributions plans are the most common ones chosen by employers for their staff. They are based on contributions funded by the employee (with the employer sometimes matching the investment with a contribution of their own). Many employers today choose this type of retirement plan because it gives them no obligation toward the account’s performance after the funds are in. The employee is the one who will collect the profit or bear the losses of their investment.

Lump-Sum Vs. Regular Pension Payments

There are instances when an employee may opt to get his retirement money in one lump sum payment. They also have the option of choosing a combination of both: getting a certain amount in one payment then split the rest into monthly payments.

The three options employees get as a pension beneficiary are:

  • A single-life annuity;
  • A qualified joint and survivor annuity;
  • A lump-sum payment;

For companies, a lump sum payment generally costs leas than purchasing annuity contracts. There is also a risk that the employee might mismanage their payouts.

If you want to make an informed decision regarding the pros and cons of a lump sum versus regular pension payments, then our consultants can offer some guidance. Check our website to learn more about the type of service we can provide.

The Pros and Cons a Defined Benefit Plan

Only reserved for public workers and a fraction of the private sector workers, a defined benefit plan is, indeed, highly beneficial for the employee, and not so easy to fund by the employer. A defined benefit plan is guaranteed for life the worker will know beforehand how much they are going to be given each month/year, making budgeting your retirement much easier. Employees can even decide to get a smaller amount for their monthly payment, allowing their spouse to still get paid after they die.

Responsibility of investment and administration falls on the employer, leaving the employee with no care about where to invest, how to administer the money and how to cover potential losses.

Companies can impose some limitations on when and how the employee wants to withdraw the money from the account. You can also set restrictions on when and by what method the worker withdraws the money without penalty. That will enable you to have higher control over the retirement fund and manage it better.

As you can see, a defined retirement plan has lots of benefits for the employees and a lot of risks for the employer. However, if these plans generate a significant profit, then you can use it to support its stock price.

The reverse side of the medal when your funds are administered exclusively by your employer is that you won’t be able to choose a potentially better plan for your retirement. Also, some defined benefit plans will not be adapted to keep up with inflation levels, affecting the quality of your life.

What to Offer When a Defined Benefit Plan Is Not a Smart Option

If providing a defined benefits retirement plan doesn’t make much financial sense for you, then you can offer other options to your employees and help them secure their future. A 401(k) plan is perhaps the most popular alternative. This means that the worker will pay a contribution from his own salary on a monthly basis while you will have to match the amount (let’s say, dollar for dollar or 50 cents per dollar). The amount that will be gathered in the 401(k) retirement account will be invested in a mutual funds trust or in the stock market.

Created in the 1970s, defined contribution plans like Individual Retirement Accounts (IRAs), 401(k) plan or the Thrift Savings Plan (which is reserved to federal employees and service members in uniforms,) are designed to give the employee an individual account where they can manage their savings by investing them.

In the US, there are limits to how much employees can contribute to their retirement plan, with the limit being raised by a fraction once they get over a certain age.

Can Employees Ask for a Defined Benefit Plan and a 401(k) Pension at the Same Time?

Even though a defined benefit retirement plan provides relative financial security to your employees, if the benefits amount – which will be calculated from their age, years of employment and earning history –  do not match their needs, their pension might not be enough to cover their expenses.

If that is the case, then employees can decide to have more than one retirement plan in place. They can also invest in an IRA or a 401(k) retirement fund, even if they already have a pension plan.

There is a maximum contribution to the 401(k) plan, so if the employee wants to save even more than his pension and 401(k), then he can invest more in an Individual Retirement Account.

Do You Still Have Questions? Ask Us Anything

It’s perfectly fine if you are still not sure what you should do next. This isn’t a decision that you can or should take overnight as it requires a lot of planning, vision, strategy, and an excellent understanding of the options available right now. We understand that you want to help your employees but also keep your company profitable, so it makes perfect sense that you would take your time to find the best solution for you.

We are here for you.

At Taylor Benefits Insurance, we specialize in creating the most efficient retirement plans for companies, allowing them to offer a beneficial plan to their employees, while still keeping their investments in place. We will take our time to understand your business, your needs, and answer all your questions so that in the end you are satisfied with the plan you’ve chosen. Our clients are like our family so we always walk the extra mile to ensure they are happy with their decision.

Contact Taylor Benefits Insurance to learn more about the best retirement plans you can offer to your employees.

Written by Todd Taylor

Todd Taylor

Todd Taylor oversees most of the marketing and client administration for the agency with help of an incredible team. Todd is a seasoned benefits insurance broker with over 35 years of industry experience. As the Founder and CEO of Taylor Benefits Insurance Agency, Inc., he provides strategic consultations and high-quality support to ensure his clients’ competitive position in the market.

We’re ready to help! Call today: 800-903-6066