Maximize Your Retirement Benefits Plan

By Matt Redshaw

Does your organization have an effective retirement benefits plan? Research shows that retirement benefits play a significant role in an employee’s decision to move to, or stay with an organization.

US firm Towers Watson’s research indicates that over one third of company employees (35%) see retirement benefits as a significant factor when choosing an organization to work for. An even higher 47% see the quality of their retirement benefits as an important reason to stay with their organization.

 

Importance Of Retirement Benefits For Attraction And Retention

**Adapted from Towers Watson's Attraction And Retention Survey 2011

 

As an employer, having a market-leading retirement package makes good business sense. As an employee, it makes good financial sense to work with an organization that offers a compelling retirement package - one that helps you successfully prepare for the future. So the question for employers and employees alike is: what makes a good retirement benefits plan?

 
 

Several factors go into making an effective retirement plan, but the following three are essential:

More specifically, this article focuses on what makes an effective defined contribution plan as opposed to a defined benefit plan.

1.      Employer-Matching
Companies that want to differentiate will provide some form of employer-contributions in their retirement package. This is a key feature that potential employees look for. Some companies provide contributions even if employees do not contribute. However, most provide a level of matching up to a certain percentage of an employee’s income. This usually ranges from 4 to 10% of salary. Matching not only provides incentive for employees to join and stay with an organization, as well as to participate in the plan, but also provides a significant boost to each plan member’s retirement savings. In many cases matching can double what the employee would have otherwise saved for retirement.

2.      Investments that Perform
In many retirement plans, investment options are generic and confusing for plan members; employees are left wondering which investment funds to choose from. Our analysis at The Tycuda Group consistently shows that the options presented in retirement plans are not necessarily those that are most suitable or have the best chance of performing for plan members. Compounding the problem is the fact that employees do not know which of the options they should choose, meaning they could end up with the best or the worst of the funds presented. A best-in-class plan should have a clear process for identifying investment options that are suitable for plan members, and have a track record of delivering the best risk-adjusted returns. Investments should be reviewed regularly, as both investment managers and the market environment change. This is a benefit to plan members, but it also helps protects the employer from liability. With potential for litigation relating to the suitability and quality of investment choices in retirement plans, it is good practice to have a clear and documented process for providing prudent investment options to employees.

3.      Member Education
Your organization may have a generous matching program and carefully selected investment options, but members may not participate or understand the benefits available to them if there is not a clear member education plan in place. Employees need to understand how the plan works, how to attract company matching, how to choose investments and what is required from them on an ongoing basis. It is important to show employees how contributing today will affect their future – for example, increasing contributions to a level that attracts maximum company matching (or even beyond this) early in an employee’s career will have a significant impact on retirement savings down the road. It is best practice to offer regular education workshops and to provide resources to help employees understand how to get the most out of the plan. Many employers take an additional step and hire outside financial advisors to provide personalized financial advice to members. This is not required by CAP guidelines, but is a helpful service to offer members.

 

Having a retirement benefits plan that incorporates employer matching, prudent investment selection and effective employee education will help your organization attract and retain talent as well as position your employees for a better retirement.

If you would like a free, unbiased review of your company’s retirement benefits package, we would be happy to help. Contact us at tycuda@3macs.com with any questions or comments.