Employee Benefit Design is primarily in the insurance and risk management business, but with that there is a lot of planning and implementing keeping your business and its employees safe physically, mentally, and financially. We have advisors that know the retirement space well.
Employee Benefit Design’s Steps to Success
One of the highest factors of an employee accepting a position (and remaining) at your place of business is them knowing that the company will partner with them to meet their personal, professional, educational and retirement goals. Retirement benefits can consist of 401(k) plans, 403(b) plans, employee stock ownership and profit sharing. For longer retention, consider a Simplified Employee Pension Plan (SEP) as a retirement savings vehicle for your employees.
When allowing employees to customize their retirement options, you can offer them to select from options such as defined contribution plans, IRAs, 401K, pensions, guaranteed income annuities, a Federal Thrift Savings Plan, cash-balance plans, cash-value life insurance, non-qualified deferred compensation plans to name a few.
Employers can match up to 100% of the savings contributed by the employee, which often incentives a larger contribution, the larger the percent match is. Dollar for dollar, a partial match or a non-matching 401K contribution all shows the employee that you value them and their goals outside of the workplace. Plus, employer contributions are tax deductible!
Another form of defined contribution that will provide a set income for life is a pension plan. Pensions ensure that employees are more apt to stay with your company through retirement, as they will then receive a monthly income, making retirement less of a risk. With pensions the employer holds the risk of the investment. Alternative defined contribution plans can come in the form of 401(k), 403(b), employee stock ownership plans and profit-sharing plans. In addition to being a significant tax advantage and a way to retain and recruit productive employees longer, you can tie contributions to profit percentages and therefore increase employee motivation and productivity.
A 403(b) is a retirement plan designed for employees of nonprofit organizations, schools, and some religious organizations. It functions similarly to a 401(k) plan and allows employees to contribute pre-tax dollars to their retirement savings. These contributions are invested in a variety of options, such as mutual funds or annuities, and grow tax-free until retirement. Employers may also make contributions to the plan on behalf of the employee. When an employee retires or leaves the organization, they can start withdrawing funds from the 403(b) account, and taxes are then paid on any distributions received. Generally, 403(b) plans have lower contribution limits than 401(k) plans, but they are still an essential tool for saving for retirement.
A 457 plan is a tax-advantaged retirement savings plan for employees of state and local governments, and some nonprofit organizations. It allows participants to defer a portion of their salary into the plan, where it can be invested and grow tax-free until retirement. One of the unique features of a 457 plan is that it allows participants to make additional “catch-up” contributions in the years leading up to retirement. Unlike some other retirement plans, withdrawals from a 457 plan can be made penalty-free as early as the age of 59½, regardless of when the participant retires.
A SEP-IRA (Simplified Employee Pension Individual Retirement Arrangement) is a retirement plan designed for self-employed individuals or small businesses with a few employees. It allows for tax-deductible contributions of up to 25% of an employee’s compensation or $58,000 (whichever is less) for the year 2021. The employer funds the plan rather than the employee. The contributions also grow tax-free until withdrawal, usually during retirement. Unlike traditional IRAs, SEP-IRAs don’t have income limitations, but they have stricter contribution limits. SEP-IRAs are portable and can be transferred to another financial institution upon separation from the employer.
A Simple IRA (Savings Incentive Match Plan for Employees) is a type of retirement plan that allows small businesses with 100 or fewer employees to contribute to their employees’ retirement savings. Both the employer and employee can contribute, with the employer required to either match the employee’s contribution or make a non-elective contribution, up to a certain percentage of the employee’s salary. The plan is easy to set up, operate and maintain, making it a popular choice for small businesses. Withdrawals are taxed as ordinary income, and a penalty may apply if the participant is under 59 and a half.
Learn more about Retirment Benefits