How to Create the Right Retirement Plan for Your Staff

Sunday, March 31, 2024 18:51 Posted by Admin

While many retired citizens receive Social Security benefits after age 65, a much smaller number have retirement plans, and even fewer have retirement plans from their employers. Let’s look at how to create the best retirement plan for your staff.

How Many Americans Receive Social Security Benefits?

More than 65 million Americans received more than $1 trillion in Social Security benefits every month in 2021. Among them were more than 47 million retired workers who received $72.7 billion in June 2021, according to the Social Security Administration.

That worked out to an average of $1,555 per month, which is not enough for many citizens to sustain the quality of life they were used to when working. It’s also why employees have retirement plans as among the most important additional benefits in their employee benefits package.

How Many Employees Have Employer-Provided Retirement Plans?

The number of people with additional retirement plans in the US is another matter. The US Bureau of Labor Statistics shows over 70% have access to employer-provided pension plans, although only 56% participated in 2021. In companies with fewer than 50 employees, 52% had access, but only 35% participated. Access and participation rates grew substantially in companies with more than 500 employees or in unionized companies.

Are Retirement Benefits Mandatory?

Beyond Social Security contributions, the federal government does not require employers to provide retirement benefits to employees. But some states do have mandatory state government retirement plans, including California, Connecticut, Illinois, Massachusetts, Oregonian, and Washington, where employers must participate or offer an alternate retirement plan.

Nine other states have legislation pending or already passed with plans to implement retirement savings plans soon, so consult with your benefits advisor to see if state laws impact your business.

Do Employees Want Retirement Benefits?

Research by MetLife shows benefits such as 401(k)s or other retirement plans are the second most desirable additional benefits feature employees want. Seventy-eight percent of employees see retirement benefits as a must-have or a nice-to-have (17%), while only 5% considered it unnecessary.

Among the top three retirement fears of Americans are running out of money (25%), maintaining their current lifestyle (23%), and covering healthcare expenses (19%), the IALC reports.

Those are powerful reasons to consider offering retirement benefits to your employees and recruits.

What Retirement Plans Are Available?

The IRS identifies two types of retirement plans – defined benefit (DB) or defined contribution (DC) plans which are slightly more popular.

In DB pension plans, retired employees will receive monthly payments based on years of service, accrual rate, and average final year’s salary. Alternatively, pensions may be based on a fixed dollar amount and the number of years in the plan.

The most common DC plans are the now-familiar 401(k), 403(b), 457(b) plans, in addition to Roth 401(k), Simplified Employee Pension (SEP) and the federal government’s Thrift Savings Plan. Employees usually contribute to the plan, and employers may match or contribute in addition on behalf of their employees.

According to a 2021 Congressional Research Report, participation in employer retirement benefit plans in the private sector ranged from 23% in the lowest salary levels to 79% in the upper 25% salaries.

Developing an employer/employee retirement plan is a complex process. Therefore, it’s critical to get expert advice when designing and implementing a retirement plan to provide the best retirement plan possible and avoid legal, accounting, tax and investment complications.

What Employers Say About Offering Employee Retirement Benefits

Pew research found the most prominent barriers to employers offering retirement benefits were cost (37%), limited organizational resources (22%), and lack of employee interest (16.7%).

Pew also cited a lack of familiarity with retirement plan options, “far fewer knew about Simplified Employee Pension (SEP) plans, Savings Incentive Match Plan for Employees (SIMPLE) IRAs, or myRAs, all of which are designed for small firms or individuals.” Businesses also said higher profits and tax credits would help offset the costs of providing employer-sponsored retirement benefits.

What’s in a Well-Designed Retirement Benefits Plan?

Employers usually choose from one of the seven best-designed retirement benefits plans mentioned earlier. But, don’t let all those plan choices, abbreviations or complex descriptions put you off. We’ll help you navigate your way to the best retirement plan for your employees.

Why Offer Retirement Benefits for employees?

The advantages of offering employee retirement benefits plans include increased interest and concern about financial well-being, employee retention and recruitment, competitive positioning, and simply caring about your employees and doing your best to help them plan for retirement.

Shocking US Facts About Retirement

So what’s driving this newfound interest in retirement plans? According to the Indexed Annuity Leadership Council (IALC), it’s not just the aging population. Most Americans have simply not saved enough for retirement:

• one in four Baby Boomers and half of Millennials have less than $5,000 saved for retirement
• 25% of Americans have nothing saved
• nearly half of Americans want to know more about retirement products like FIAs
• almost 20% don’t know how much they have saved for retirement.

It’s hardly surprising that interest in retirement plans is growing among employees and forward-thinking employers.

Expert Help Creating the Best Employee Retirement Plan

We know designing an excellent retirement plan for your employees is a challenge. We’re proud of our work helping small businesses develop popular employer-sponsored retirement plans, and we invite your questions about what is cost-effective and works best for your company and your employees.