Defined pension plans provide a stable and steady source of income for retirees. Whether your employees are planning to retire soon, or decades down the road, it is your job to make sure they have the information they need to prepare for their future. The more information you provide, the better they will be able to take advantage of the benefits packages you offer.
Explain Your Pension Plan
There are two types of pension plans, defined contribution pensions, and defined benefits pensions. Defined contribution pensions require employees to make monthly contributions that are then invested by the company. When the employee retires, the value of the benefit is determined by how well the investments have performed over the years.
Conversely, the value of defined pension plans is determined by how many years the employee worked for the company, their salary during that time, and accrual rate, which determines how much they will receive when they reach retirement age. These are not as common as in the past, but many larger companies still offer them.
Your employees need to understand whether you offer a defined contribution pension or a defined benefit pension. As such, it is crucial to explain the differences to alleviate any confusion and problems that could arise. For instance, an employee who assumes you have a defined program “finds out” five, ten, fifteen years later that you don’t and has missed out on years of benefits as a result.
You should explain this in their onboarding materials and include general calculations that can help them calculate how much they should contribute, or how many years they need to work to receive their desired level of monthly income.
Stay on Top of Your Pension Plan
One of the most prominent concerns employees have is that their benefits will evaporate as they near retirement or in the years after they have put on the gold watch. Staying on top of your administrative duties will help alleviate this risk and place your employees at ease. Make sure that you understand and explain the plan’s performance and conditions to your employees regularly. It is best to conduct a fundamental review every quarter, with a full audit and evaluation at least once per year.
As time passes, you will likely need to make changes to your plan. You must assess it for risks and change the way the program is administered when problems emerge. Equally important is maintaining compliance with IRS regulations and other regulatory requirements that affect the plan. As an employer, these can have a significant impact on your reporting requirements and the costs associated with providing your employees this retirement benefit.
Provide a Detailed (and Updated) Explanation of Other Benefits
Informed employees are the best employees. The more they know about their 401(k), Social Security, Medicare/Medicaid, and other benefits, the better the decisions they will make for their retirement. When they have this information, they can keep their focus on work and not worry about retirement. Pensions are a critical part of retirement planning, but they are only part of the equation. Helping your employees calculate how their future benefits fit together can help them maximize the value of their retirement contributions and other investments.
No one wants to work forever. Our team can help your employees make the transition into retirement and get the most out of their golden years. We invite you to contact Greenlink Payroll at (480) 385-2525 to learn more about the ways our pension services are a benefit to your business and your employees.