Key takeaways:

• Types of retirement plans: Defined benefit plans, like pensions, let employees know exactly what they’ll receive in retirement, while defined contribution plans, like 401(k)s, are based on market ups and downs.
• 5 tips for retirement planning management:
  1. Educate employees on how much they need for retirement
  2. Explain the tax benefits of employer-sponsored retirement plans
  3. Create a retirement checklist for employees that are about to retire
  4. Optimize your plan design
  5. Ask for feedback from employees

You know how important it is to prioritize retirement for employees. Offering competitive retirement benefits is crucial to sustain satisfaction and retention. A Morgan Stanley report found that 93% of employees see retirement planning assistance as a priority when deciding who to work for. Impacts from the pandemic still linger, and almost 17% of Americans are saving less for retirement since it started. Therefore, your support is more crucial than ever.

What should a company consider when retiring an employee? This is your guide to retirement planning management, including types of plans employers offer and tips you may not have thought of.

First, let’s briefly cover the different types of retirement plans. You need to know all the benefits each plan offers employees, like key tax benefits. Here is an overview:

• Defined benefits plans: These plans ensure workers will get a specific monthly amount when they reach retirement, and that amount is commonly based on the years they held the job and their salary. They are usually called pensions or qualified-benefit plans, and the company takes on all the plan management and risk. Your organization would also maintain control over plan investments. Typically, employees will have to work at an organization for a specified time period to become vested in the pension plan.

• Defined contribution plans: Defined contribution plans don’t ensure a specific monthly amount in retirement. Employers and employees both contribute to individual accounts for the employee, and the worker will start to receive payments from the plan when they retire. Those funds will go through investment gains and losses over the life of the plan, and employees have control over their investment strategies. Examples of these plans include 401(k)s and 403(b)s.

Pension plans benefit workers because their pension builds as long as they keep working at the organization. It is easy for them to budget for retirement since they know what they’ll be receiving each month.

Pensions can put a lot of burden on the employer, however. They take on the risk and are responsible for managing the plans. This is one reason why 401(k)s are so common.

In either type of retirement account, contributions can be made pre-tax, so workers don’t have a tax burden now but will have to pay income tax on their withdrawals in retirement. Roth savings accounts, however, give employees tax-free withdrawals in retirement, but they have to pay taxes on their contributions now, in the year they made them.

There is no one right answer to what retirement account is right for your employees. Understanding these basic pros and cons helps you start planning what kind of retirement account you’ll offer and manage.

Helping your employees plan for retirement shows them you value their life goals and want them to succeed financially. When you’re creating your retirement management plan, consider these five tips:

1. Educate employees on how much they need for retirement

Provide plenty of resources to workers to help them plan effectively. 43% of employees say they just take a guess at what they need to retire instead of using their current expenses or a retirement calculator. So, helping them stay educated about how their budget might change or what they need to maintain their lifestyle will help them succeed when the time comes.

2. Explain the tax benefits of employer-sponsored retirement plans 

Sometimes employers give employees a few options for retirement, or workers will want to supplement their employer account with their own account on the side. Help them understand how your plan or their additional plans can bring them tax benefits. For example, explain what it means to use pre-tax money for contributions. Explain that this strategy helps them maximize what they save now, even though they have to pay income tax in retirement.

3. Create a retirement checklist for employees who are about to retire

Successful retirement management is more than choosing a plan and helping employees save. Your employees may stay with you until they retire (hopefully), so you need a plan to help them with their upcoming life change. Create a retirement checklist for soon-to-be-retiring employees, which may include these elements:

• Encourage workers to calculate what they’ll receive in retirement
• Update your records and systems with their work end date
• Show them how to apply to receive their retirement benefits and explain how payments will work
• Explain any rules for working after retirement, including how many hours they can work to still receive benefits
• Give them contact information if they have questions for their retirement account servicer

Retiring an employee can be a big change for both of you. Make sure you know how the process will work and how to support them properly.

4. Optimize your plan design

There are many small steps you can take to improve your retirement plan design, which benefits both you and your employees. One example is automatically enrolling employees in your retirement account, so they’ll contribute unless or until they decide to opt out of those contributions. This one small change helps you boost the number of employees who participate. Additionally, if you offer an employer matching feature to your plan, it will entice people to sign up.

5. Ask for feedback from employees

When you’re unsure what retirement goals are most important to employees, just ask them. Send out a survey or hold a question-and-answer session to find out what they’re worried about and how you can help. Just as every company is different, every team of employees will have differing priorities and opinions about their retirement planning goals.

Planning for retirement for employees ensures you’re prioritizing their needs and education while considering your own goals and budget. You need to know what you can realistically spend on retirement benefits like a 401k and ROTH and how they connect with other offerings in your benefits package.

StaffLink is here to walk you through it all. We are a national Professional Employer Organization (PEO) and work alongside your in-house team to create better HR solutions for functions like payroll, benefits and risk management.

Request a proposal or contact us at (954) 423-8262 for more information.