This paper will propose several types of retirement plans that could be offered to employees. In addition, a communication plan will be designed to encourage employee participation for one of the proposed retirement plans. Retirement Plans. Employer-sponsored retirement plans provide employees with income after they have met a minimum retirement age and have left the company (Milkovich and Newman, 2008).
Companies establish retirement or pension plans following one of three different designs: a defined benefit plan, a defined contribution plan, or hybrid plans that combine features of traditional defined benefit and defined contribution plans (Milkovich and Newman, 2008).
The importance of employer-provided retirement plans is evidenced by a recent study showing that employees with employer-provided retirement plans are more likely to have sufficient savings for a comfortable retirement than those who do not have these plans (Milkovich and Newman, 2008).
Two basic types of pension plans that will be offered are: defined benefit plans and defined contribution plans (Milkovich and Newman, 2008).
Defined benefit plan. Defined benefit plans guarantee retirement benefits specified in the retirement plan document. This benefit usually is expressed in terms of a monthly sum equal to a percentage of a participant’s preretirement pay multiplied by the number of years he or she has worked for the employer (Milkovich and Newman, 2008).
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Defined contribution plans require that employers and employees make annual contributions to separate retirement fund accounts established for each participating employee, based on a formula contained in the plan document (Milkovich and Newman, 2008).
Defined benefit plans are quite costly to employers compared with defined contribution plans: Companies struggle to fund these plans adequately to ensure that retirees receive entitled benefits for the remainder of their lives (Milkovich and Newman, 2008).
Defined contribution plans.
Under defined contribution plans, employers and employees make annual contributions to separate accounts established for each participating employee, based on a formula contained in the plan document (Milkovich and Newman, 2008).
Formulas typically call for employers to contribute a given percentage of each participant’s compensation annually (Milkovich and Newman, 2008).
Employers invest these funds on behalf of the employee, choosing from a variety of investment vehicles such as company stocks, diversified stock market funds, or federal government bond funds.
Employees may be given a choice of investment vehicles based on the guidelines established by the employer (Milkovich and Newman, 2008).
Defined contribution plans specify rules for the amount of annual contributions. Unlike defined benefit plans, these plans do not guarantee particular benefit amounts (Milkovich and Newman, 2008).
Participants bear the risk of possible investment gain or loss.
Benefit amounts depend upon several factors, including the contribution amounts, the performance of investments, and forfeitures transferred to participant accounts (Milkovich and Newman, 2008).
Companies may choose to offer one or more specific type of defined contribution plans (Milkovich and Newman, 2008).
Common examples of defined contribution plans include profit-sharing plans, stock bonus plans, and employee stock ownership plans (Milkovich and Newman, 2008).
There are three popular forms of defined contribution plans.
A 401(k) plan, so named for the section of the Internal Revenue Code describing the requirements, is a savings plan in which employees are allowed to defer income up to a $12,000 maximum (which increases by $1,000 a year from 2003 to 2006, with amounts indexed for inflation thereafter) (Milkovich and Newman, 2008).
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Employers typically match employee savings at a rate of 50 cents on the dollar. Defined contribution plans are more popular than defined benefit plans in both small and large companies (Milkovich and Newman, 2008).
Historically these plans are faster to vest (the companies matched share of the contribution permanently shifts over to employee ownership, and they are more portable—job hopping employees can take their pension accruals along to the next job) (Milkovich and Newman, 2008).
The second type of plan is an employee stock ownership plan (ESOP) (Milkovich and Newman, 2008).
In a basic ESOP a company makes a tax-deductible contribution of stock shares or cash to a trust (Milkovich and Newman, 2008).
The trust then allocates company stock (or stock bought with cash contributions) to participating employee accounts (Milkovich and Newman, 2008).
The amount allocated is based on employee earnings (Milkovich and Newman, 2008).
When an ESOP is used as a pension vehicle (as opposed to an incentive program), the employees receive cash at retirement based upon the stock value at that time (Milkovich and Newman, 2008).
ESOPs have one major disadvantage, which limits their utility for pension accumulations (Milkovich and Newman, 2008).
A third type of plan is a hybrid of defined benefit and defined contribution plans that have emerged in recent years. Cash balance plans are defined benefit plans that look like a defined contribution plan. Employees have a hypothetical account (like a 401[k]) into which is deposited what is typically a percentage of annual compensation (Milkovich and Newman, 2008).
The dollar amount grows both from contributions by the employer and from some predetermined interest rate (Milkovich and Newman, 2008).
Because the Internal Revenue Service isn’t convinced conversions fairly impact older workers, many companies are reluctant to adopt this platform (Milkovich and Newman, 2008).
employee retirement Income Security Act of 1974. Organizations are responsible for fulfilling certain regulations established by the government. ERISA was established to regulate the implementation of various employee benefits programs, including medical, life, and disability programs, as well as retirement and pension programs (Martocchio, 2009).
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The essence of ERISA is protection of employee benefits rights (Martocchio, 2009).
ERISA addresses matters of employers’ reporting and disclosure duties, funding of benefits, the fiduciary responsibilities for these plans, and vesting rights (Martocchio, 2009).
Companies must provide their employees with straightforward descriptions of their employee benefit plans, updates when substantive changes to the plan are implemented, annual synopses on the financing and operation of the plans, and advance notification if the company intends to terminate the benefits plan Martocchio, 2009).
The funding requirement mandates that companies meet strict guidelines to ensure having sufficient funds when employees reach retirement (Martocchio, 2009).
The protective laws under ERISA only apply to private employers (non-government) that offer employer-sponsored health insurance coverage and other benefit plans to employees (Wolfe, 2013).
ERISA does not require employers to offer plans; it only sets rules for benefits that an employer chooses to offer (Wolfe, 2013).
ERISA laws do not apply to privately purchased, individual insurance policies or benefits (Wolfe, 2013).
Communication plan. Critical to the success of any employee retirement plan is communication, buy-in, and ongoing education (Lyceum, 2013).
A plan only works if employees actually participate and experience the value (Lyceum, 2013).
A solid communication plan can go a long way toward increasing employee participation and satisfaction with plans that are specifically designed to serve their needs (Lyceum, 2013).
Target audience. The targeted audience of the communication plan is the organizations’ 150 employees. Objectives and goals. The objective of the communication plan is to communicate information on retirement plans available, encourage employee participation for one of the proposed retirement plans, and to overcome resistance to participation. Method of communication. There are various types of communication the organization can us to address the different of plans and the plan perceived value to employees (Watson, 2010).
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Higher plan importance and satisfaction are associated with specific types of communication (Watson, 2010).
The organization can use interactive modeling tools, financial planning seminars and web site conferences to provide the biggest boost to a plan’s importance and satisfaction (Watson, 2010).
Holding group meetings once a month, providing one-on-one meetings between independent investment advisers and employees held quarterly and using e-mail periodically can be effective in increasing employees’ encouragement in participation and appreciation of their plans (Watson, 2010).
By conducting scheduled face to face meetings, written communication, and one on one meeting with employees are effective ways to reduce or diminish employee participation in the retirement plans made available to them. Employee enrollment. There are a variety of ways to get employees to enroll into a retirement plan that fits their needs. The most effective method is through automatic enrollment; automatic enrollment has been proven to increase employee participation in retirement plans.
Other methods to encourage employee enrollment are through online enrollment programs and through enrollment meetings where employees meet with financial counselors to discuss the different types of plans. In conclusion, retirement plans are expensive, but if employees don’t fully understand or appreciate their plans, employers are not getting the most from their investment in terms of attraction and retention (Watson, 2010).
Many employers overlook the potential value added by employees’ understanding and appreciation of their retirement plans (Watson, 2010).
Defined benefit and defined contribution plans that are highly valued by employees can serve as very effective human resource management tools (Watson, 2010).
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Effective communication about a company’s retirement plan also makes an enormous difference in the plan’s perceived value (Watson, 2010).
References Lightbulb Financial. (2013).
Employer-Sponsored Retirement Plans. Retrieved from http://lightbulbfinancial. com/employer-sponsored-retirement-plans/ Lyceum (2013).
Employee Retirement Plan Education & Communication. Retrieved from http://financial. lyceum. com/services/employee-retirement-plan-education. hp Martocchio, J. J. (2009).
Strategic compensation: A human resource management approach (5th ed. ).
Upper Saddle River, NJ: Pearson Education. Milkovich, G. T. & Newman, J. M. (2008).
Compensation (9th ed. ).
New York: McGraw-Hill Watson, T. (2010).
Increasing Employees’ Appreciation of Their Retirement Programs. Retrieved from http://www. watsonwyatt. com/us/pubs/insider/showarticle. asp? ArticleID=14860 Wolfe, L. (2013).
ERISA Law – What is ERISA and What Does ERISA Law Cover? Retrieved from http://womeninbusiness. about. com/od/erisalaw/a/erisa-basics. htm