Why Do We Even Have a Retirement Plan?

7K0A0223If you make decisions regarding the administration of your employer’s retirement plan or its investment choices, then you are a fiduciary to the plan. As a fiduciary, you are charged with making decisions that can impact the employees’ assets in the plan, and ultimately their retirement readiness. Those decisions must be prudent, but they should also drive your plan toward being a good plan. However, you may ask what does it mean for a plan to be a good plan?

Before you can answer the question of whether your plan is a good plan, you must first understand your employer’s reason for sponsoring a retirement plan. Having an employer-sponsored retirement plan is entirely optional. If an employer does sponsor a retirement plan, it must adhere to strict guidelines set out in federal law. Because the employer must learn and comply with complicated rules with stringent penalties to sponsor a plan, the employer should have a specific goal for the retirement plan.

After discussing plan goals with various company presidents and owners, three primary goals have emerged. First, many employers use the retirement plan to recruit and retain talent. Second, other employers want their retirement plan to help employees become retirement ready. Third, employers establish the plan to meet the basic employee expectations of their overall benefits package.

The employer whose only goal is to keep up with employee expectations of having a retirement plan in the overall benefits package often sees the retirement plan as a necessary evil and is rarely concerned with whether the plan is a good plan or not. Nevertheless, having a good plan is essential to meet the goals of employers interested in attracting and retaining talented employees or helping employees become retirement ready. If the employer’s goal for the retirement plan is to recruit and retain talent, then the employer should provide an attractive employer contribution with a long vesting schedule. If the employer’s goal is the help employees become retirement ready, then the employer should consider implementing automatic features to ensure that employees are both in the plan and are saving enough to become retirement ready. Once you understand the plan goals, then you can establish criteria to measure whether those goals are being met.

If you have any questions about how to achieve the goals for your retirement plan or how to effectively measure those goals, contact us for more information by email pensionconsultants@pension-consultants.com or phone (417) 889-4918.

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