HR Mavericks

Eddy’s HR Mavericks Encyclopedia

Retirement Benefits
As an employer, you want to do everything you can to take care of your employees. One way to care for employees is through retirement benefits, something every employer should consider providing. This article explains what retirement benefits are and the impact they have on employees.

What Are Retirement Benefits?

Retirement benefits are money that can be used after retiring from work. Typically this benefit accumulates through contributions from each paycheck during an employee’s career.
77% of working Americans view retirement savings as their most important benefit
Compensation and Benefits Statistics

Why Businesses Should Offer Retirement Benefits

In today’s economy, it is important for a company to stand out from other companies. One way to do this is through benefits. Benefits play a huge role in an employee’s decision to work for a company or not.
  • Improves recruiting and retaining. Eden Health reports that 78% of employees say they are more likely to stay with their current company if the benefits are attractive. What benefits a company should offer depends on the company and workforce, but retirement benefits are important to most employees. Forbes reports that 62% of employees are more likely to consider employment with a company if a retirement plan is available. It is easier to attract and retain talent if you offer retirement benefits.
  • Gives employees peace of mind. Providing retirement benefits and long-term security gives employees peace of mind. Employees want to feel like their employer is concerned for their financial well-being. In fact, 76% of employees say they are likely to be more interested in a company that cares for their financial well-being. In addition to the long term peace of mind that retirement benefits give to employees, there are also immediate perks to offering retirement benefits. According to Forbes, 73% of employees say their productivity is profoundly affected by financial worries. Give your employees financial peace of mind and they will be more productive.
  • Tax benefits. Offering retirement benefits to employees can provide tax benefits to both you and your employees. A benefit for employees is pre-tax deductions. Most retirement plans take money out pre-tax, which means employees’ take home pay will be taxed at a lower rate. For business owners, you can have a lower tax liability by contributing a large amount of your salary to your personal 401(k) retirement plan, thus putting yourself in a lower tax bracket. For more info on other business tax credits and how they work, click here.

Types of Retirement Benefits

There are many kinds of retirement benefits plans. It can be difficult to keep track of them all or to understand their pros and cons. Here is a list of the more common plans employers offer their employees.

401(k)

The 401(k) is the most common retirement benefit offered by employers. This is due to the low cost, the flexibility it offers and how easy it is to set up and administer. Most employers who provide a 401(k) also offer a match, or set amount, on how much they will contribute to an employee’s 401(k) if the employee contributes. For example, an employer might match an employee dollar for dollar what they contribute from each paycheck up to 3%. All money contributions are pre-tax, but you will be taxed on it when you choose to withdraw the money (whether for retirement or an early withdrawal). Typically there is a penalty if someone chooses to withdraw from their 401(k) early. An employee can decide how they want to invest their money that is in their 401(k), but typically that is all set up through the company the employer chooses to administer their 401(k) (such as Transunion or The Standard)

Roth IRA (Individual Retirement Account)

This is less commonly done through an employer. It is similar to a 401(k), where the money contributed is invested in different stocks. One key difference is that this money is post tax. The money you put into a Roth IRA has already been taxed, which means you don’t have to pay taxes when you withdraw it.

HSA (Health Savings Account)

An HSA is not commonly referred to as a retirement account, but it can be used as one. With an HSA, you can contribute a certain amount of money pre-tax each year depending on how many people are on the insurance plan. Most employers that offer an HSA will contribute a certain amount each month. Funds for an HSA can be used for medical expenses and roll over from year to year. You can save this so that by the time you retire, you can use all saved funds to pay for any medical expenses.

Profit-Sharing Plans

Profit-sharing plans are a unique way to reward employees for their performance. It is similar to a bonus and can be given out on a quarterly or annual basis. These are designed so that only employers make contributions.

Pensions

Pensions have become less common in recent years, but some companies still offer pensions. With pensions, a company guarantees an employee a specific amount for retirement if they work a certain number of years. Typically this is tiered, with the more years you work, the more money you have for retirement. Both the employee and employer make contributions from each check towards the pension. If an employee leaves a company prior to retirement, they are still entitled to that money.

What to Consider When Choosing Retirement Benefits

As outlined above, there are many options when it comes to retirement benefits. As a business, you are likely only able to offer one or two of these retirement benefits. Here are some things to consider when choosing which retirement benefits to offer.

Flexibility

The first thing to consider is flexibility for all employees. As your company grows, you will have more employees with different needs, and you won’t have a cookie-cutter way to handle retirement benefits. It’s important to consider a plan that is flexible and will be most beneficial to all employees.

Ease of Administration

Some retirement benefits take more time than others. Some might force you to hire an administrator. How much time are you willing and wanting to spend to ensure this retirement benefit is administered correctly? If your company has only 20 employees now and overseeing all the HSA and 401(k) contributions is doable, remember as your company grows, it is going to be less doable. Are you willing to invest in more people to continue administering those retirement benefits? These are questions to consider.

Will It Attract and Retain Talent?

As an employer, decisions regarding compensation and benefits affect retaining current talent and attracting new talent. Each retirement benefit has something different to offer and might be more geared to a certain generation or demographic. If you are looking for a specific type of talent, consider what kind of retirement benefit they will be looking for.

How to Provide Retirement Benefits to Employees

Each retirement benefit is set up differently, so be sure to do your homework on what you need to do. However, here is a general step by step for setting up retirement benefits.

Step 1: Choose a Retirement Benefit

The first step is to decide which retirement benefit you want to offer to employees. Research what benefits will be most beneficial for your employees, both current and future. When choosing this benefit, consider not only what will work for your company now, but five years from now.

Step 2: Find a Program Administrator

Anytime you have a retirement benefit, you need someone to administer it. Whether it’s a 401(k), Roth IRA, or an HSA, different companies offer different financial services to help your program administrator.

Step 3: Provide Records to the Program Administrator

After you choose a retirement benefit and find a program administrator, gather employee records for your program administrator so they can start the implementation process. This can take the most leg work, but once it is completed, you have the process in place to contribute employer and employee funds to the necessary accounts.

Step 4: Communicate to Employees

After the retirement benefit has been put in place, you need to communicate with all your employees. Much of the required paperwork will be provided by the program administrator, but you need to make sure all employees are aware of the change and what is being offered. In addition, you’ll need to make sure all future employees are aware of this retirement benefit and how to enroll. This can be added to a new hire orientation or a list that shows the benefits your company offers. Don’t assume that employees will hear about it or that new employees will know about it. Communicate about it to employees correctly and in a timely way.
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Tanner Pierce, PHR

Tanner Pierce, PHR

Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.
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Frequently asked questions
Other Related Terms
Benefits Administration
Carryover (PTO)
Commuter Benefits
Company Car
Competitive Pay
Dental Insurance Benefit
Disability Insurance
Earned Wage Access (EWA)
Employee Benefits
Employee Incentives
Employee Relocation
Employee Rewards
Employee Stock Ownership Plan (ESOP)
Employee Swag
Employee/Employer Flexibility
Equity Compensation
Flexible Spending Account (FSA)
Floating Holidays
Golden Handcuffs
Group Incentive Plan
Health Reimbursement Account (HRA)
Health Savings Account (HSA)
Life Insurance Policy Benefit
Lump-Sum PTO Policy
Open Enrollment
PTO Accrual
PTO Accrual Cap
PTO Payout
Paid Holidays
Paid Vacation
Pension
Restricted Stock Units (RSU)
Roth 401k
Section 125 Cafeteria Plan
Special Enrollment Periods
Spousal Surcharge
Traditional 401k
Tuition Reimbursement
Unlimited PTO
Vesting
Vision Insurance Benefits
Workers' Compensation
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