Jeff Kempker, CEBS, CRC
It’s no secret that retirement is the most important and expensive purchase we will ever make and many Americans are woefully unprepared. In fact, recent research by the National Institute on Retirement Security gave Missouri a mere average rating for its citizens’ retirement preparedness, meaning many of our retirement dreams may someday turn into nightmares.
How can we turn this around?
Retirement preparedness can be strengthened through commitment from employers and employees alike. Offering a well-structured, employer-sponsored retirement plan is not just good for workers, but can have great benefits for an employer as well. Here are five things to consider when structuring a retirement plan for your workforce:
1. If you don’t know where you’re going, any road will take you there.
Figure out what you are trying to accomplish with your retirement plan and how it fits in with your overall compensation package. Maybe you want to reduce employee turnover? Encourage earlier retirements? Increase productivity and morale? Attract high quality workers? These are all noble goals that a retirement plan can help achieve.
2. How much should a retiree expect to receive from the plan?
There is a new focus on the importance of steady monthly income during the retirement years. A recent Merrill Lynch survey found that 82% of workers would be willing to give up 5% of their salary in exchange for dependable monthly retirement income.
A retirement plan must be designed to replace enough salary so that employees are encouraged to retire when they are supposed to. So what is an acceptable level of salary replacement? Traditionally, financial planners have recommended a person replace somewhere between 75%-90% of their working salary, depending upon the individual’s desired lifestyle. This number should take into account benefits from Social Security, the employee’s personal savings, as well as your employer-sponsored retirement plan. A defined benefit plan guarantees a certain income replacement based on a formula while income replaced by an individual account plan will be based on how much the worker was able to accumulate during her career.
3. Cost.
Giving consideration to cost is a no-brainer. Every employer must determine how their retirement plan fits in with their total compensation package and their budget. Also figure out if the employees will help fund the benefit.
4. Should employees be required to participate in the plan?
Typically all employees who work a certain number of hours are covered under a defined benefit plan and may or may not be covered under an individual account type plan. The point is to get as many people into the plan as possible so you can achieve your goals. Also give thought to whether the employees should direct their own investments or if that should be left to professionals.
5. Who should be the administrator of the plan?
When choosing the agency that will administer your retirement plan, ask about fees. How much and who pays? Also, what is the historical record of stability with this agency and what about customer service? Will your employees have access to personalized online tools to help them plan their retirement? Is there access to in-person consultations?
Talking through these items with your team before contacting potential plan administrators will make for a better end result for your employer and for your workers. Also remember that open communication with employees during the benefit selection process is key for successful integration.
Jeff KempkerManager of Member Services
