Retirement plans are a powerful tool for attracting and retaining top talent. If you don’t have a competitive plan, you risk losing your top people to an organization that does.
“As the workforce becomes increasingly mobile, fewer companies are offering defined benefit, or pension plans, since they’re not portable and can be expensive for employers to fund,” says Frank Fantozzi, CPA, MST, PFS, CDFA, AIF®, CEPA, president and founder of Planned Financial Services. “As a result, defined contribution plans, such as 401(k)s and 403(b)s, have increased in popularity.”
Smart Business spoke with Fantozzi about how a strong corporate retirement plan can help attract and retain employees, while also benefiting owners.
How can a company get started creating an attractive retirement plan?
How a company structures a plan depends on its goals, cash flow, targeted benefits, desired tax deductions and other factors. First, determine what you want to include — and what you don’t. In 2022, 403(b) and 401(k) plans allow employees to defer up to $20,500 and a catch-up contribution of $6,500 for those over 50. Owners can offer matching or profit-sharing contributions and include automated options like automatic enrollment and deferral increases.
How can a certified plan adviser help employers identify the best options?
A plan adviser will consult with an owner to determine how robust they want to make the plan, including if they offer a match to incentivize employees to participate. While there’s freedom in plan design, which addresses the goals of the plan and who will benefit, a plan adviser can help you avoid costly errors and administrative headaches. For example, if the plan design and census indicate that, collectively, 60 percent or more of the plan assets are owned by highly compensated employees (those receiving $135,000 or more in compensation in 2022) and/or employees who are 5 percent owners, that could result in unfavorable deferral limitations. One solution is evaluating IRS safe harbor designs which, if met, remove these limitations.
Another consideration is targeting significant company contributions for owners and key employees. By adding a cash balance pension plan, companies can use excess cash flow to reward key employees and obtain favorable tax deductions.
How else can a certified plan adviser add value?
A plan adviser will curate investments, determine which to offer employees and continuously monitor those choices. Highly experienced plan advisers will provide investment fiduciary oversight as an ERISA 3(21) fiduciary (co-fiduciary) or ERISA 3(38) investment manager (full fiduciary) to limit this form of liability.
Complex rules govern fiduciary plan compliance. If the plan is audited by the Department of Labor, it will want evidence of plan oversight, as the plan sponsor is a plan fiduciary. Advisers also monitor the company’s relationship with the plan’s custodian, which holds the investments, provides recordkeeping and the technology to manage participant accounts.
Finally, you can have the best plan design, custodian and investment lineup, but if employees are not engaged, they won’t maximize the plan’s benefits. The adviser can help drive engagement by delivering targeted communications, education and advice so employees can incorporate what is often one of their largest investment assets into their successful retirement plan. This is advantageous for employers, who have a vested interest in helping employees retire on time with the money they need. Doing so can also reduce costs associated with a mature workforce, such as high health insurance premiums, wages and salaries.
Employers may try to go it alone, but you get what you pay for. If you hire the right advisory team to guide you through the complexities of plan management, you can make that up through improved financial results and employee engagement when they genuinely value their retirement plan benefit, the ability to attract and retain high-quality employees and reduced fiduciary liability.
Think about what you want to accomplish for your business and employees, and then work with the right certified plan adviser to get it done. ●
INSIGHTS Wealth Management is brought to you by Planned Financial Services