People prepare for retirement in many different ways, from investing in 401(k) plans to establishing individual retirement accounts. Similarly, today’s business owners who offer retirement planning help their employees plan for retirement using a variety of methods. Just as those taking part in retirement planning have designated rights and responsibilities related to their retirement planning, so do employers, or those â€œsponsoringâ€ the retirement plan. Read on for an overview of what you need to know if you choose to offer retirement benefits to your employees.
Employee 401(k) Plans: An OverviewEmployee 401(k) retirement plans are quite common. Essentially, a covered employee takes control of their retirement finances by contributing a portion of their earnings into a retirement account. These plans vary broadly in terms of associated fees, which can alter the plan’s profitability considerably. Generally, 401(k) retirement plan fees are grouped into one of three categories. Plan administration fees refer to those that go toward the basic, day-to-day management of the retirement plan. Plan administration fees can be taken directly out of retirement accounts or assessed separately, but they are generally pretty difficult to avoid. Investment fees are those that go toward the management of the retirement plan and are generally a percentage of the funds found within. Individual service fees are assessed in some 401(k) plans that have optional features, and they are typically a separate charge assessed to those looking to utilize a given feature of the retirement plan.
401(k) Plans and Employer Obligations: An OverviewToday’s employers are obligated to perform their due diligence in terms of uncovering important information regarding retirement plan expenses and fees. Employers who choose to offer retirement savings plans must establish and follow a practical procedure when it comes to selecting service providers and investment options, and it is also the duty of the employer to ensure that all expenses and fees given to these selected service providers are reasonable and valid given the degree of service offered. Employers offering retirement benefits also must consider diverse investment alternatives for their employees, and finally, they must regularly monitor these providers and investment alternatives over time to ensure their selections continue to be in the best interests of all involved.
Pensions and Layoffs: An OverviewToday’s business owners need to know what is required of them in the event that an employee with a pension plan is laid off from his or her job. Essentially, if the employee is enrolled in what’s known as a defined contribution plan, a profit-sharing plan or a 401(k) retirement plan, the employer will typically pay out what’s been put away for retirement in one lump sum. Employees enrolled in what are known as defined benefit plans, or those that involved predetermined benefits, generally aren’t granted access to retirement funds until retirement officially begins. It is normally more difficult for employees to gain access to retirement funds in defined benefit plans than it is from defined contribution plans.
The Simplified Employee Pension Plan: An OverviewAnother retirement-savings option some employers make available to their workers is the Simplified Employee Pension Plan. In these relatively basic plans, the employer contributes to an employee’s individual retirement account in a manner beneficial to the employer tax-wise. Eligible employees must first set up IRAs, and in most cases, the employer can contribute as much as a quarter of an employee’s annual pay or $40,000 (whichever amounts to less) into the account annually. In some cases, employees have to earn a specific minimum in order to qualify for this type of plan.
The Employee Retirement Income Security Act: An OverviewThe Employee Retirement Income Security Act of 1974 dictates minimum standards and guidelines for retirement plans offered by private companies. For example, ERISA dictates information such as when employees can enroll in retirement plans, how much time an employee can take off from work before it impacts the retirement plan, whether an employee’s spouse may receive benefits in the event the employee passes away and how long an employee must work for a company before he or she accrues non-forfeitable interest. It’s important to note that employers are not mandated by ERISA to offer retirement plans in the first place, and the act also doesn’t stipulate exactly how much money participants must receive as benefits. Rather, it simply sets guidelines for employers who do, in fact, choose to offer retirement savings plans to their employees.
While this information provides a general overview of today’s available retirement benefits, these plans can prove complicated. Employers who choose to help their employees invest in their futures should perform their due diligence to ensure they select and implement appropriate plans for their employees.
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