Employees can use these resources to understand the different retirement plan options. This includes determining whether a defined benefit plan or traditional 401(k) is the right option for them.
Employees can also learn more about their rights under ERISA and find information on obtaining employee plan documents.
Employees
A retirement plan is essential for employees to help them achieve their savings goals. Employees should check with their plan administrator or human resources office to see what plans are available at their employer. They should also ask about the rules and requirements of the plan, such as when they can participate and how long they must work to earn benefits. Many employers summarize their plans in a booklet called the Summary Plan Description.
Some employers use 401(k) plans, SIMPLE IRAs, Simplified Employee Pensions (SEP) plans, profit-sharing accounts, and cash balance accounts. These plans typically allow employees to contribute to these funds pretax. Employees should note that these contributions and any earnings from the investments are only taxed once they are withdrawn from the account at retirement.
Employees should also find out whether their employer must match the employee’s contribution. This is often a desirable benefit and can significantly increase an employee’s savings potential. Additionally, many employers offer tools to show employees if they are on track to retire with the desired income. These tools for small business retirement plan resources are often straightforward and can provide an estimate based on the employee’s age and earnings history. These tools can motivate employees to take action if they are off target.
Employers
Financial matters are a significant source of stress for employees, and 38% say they have less than a thousand dollars saved. Employer-sponsored retirement plans offer financial incentives to help reduce these stresses, primarily through contribution matching and automatic payroll deductions. These plans also encourage workers to save more by making it easy for them to do so, and they can boost employee retention by allowing workers to stay with a company longer and thus earn more retirement savings.
Most employers that sponsor a plan cite helping workers save for retirement and attracting and retaining employees as their primary reasons for offering a retirement benefits plan. However, only a small percentage use tools known to boost participation and savings, such as automatic enrollment and escalation. Most employers that do not offer a plan cited cost (37%) and lack of administrative capacity (22 percent) as barriers to starting a plan.
Employers with a retirement plan typically provide each of their employees with a summary document each year, which explains the terms and conditions of the plan and includes detailed information on how to participate. The summary document is essential because it helps workers understand how their retirement savings are accumulating and what steps they can take to reach their goals. Also, many of these documents contain vesting schedules designed to prevent employees from taking the money they earned and leaving immediately.
Plan Sponsors
Plan sponsors — owners of companies that run employee benefit plans, such as 401(k)s — take on an important role. As fiduciaries, they ensure the plan complies with IRS rules and regulations. This includes avoiding conflicts of interest and working to keep fees reasonable. The plan sponsor is responsible for ensuring that employees have access to crucial information about their savings and retirement accounts.
One of the most common mistakes a plan sponsor can make is missing deadlines for critical filings, such as Form 5500 and Summary Annual Report (SAR). This can lead to penalties from the IRS and the Department of Labor. It’s best to choose a service provider offering automated reminders or other tools to help you avoid these mistakes.
It’s also crucial for plan sponsors to consider retirement income solutions for participants. A 2023 Defined Contribution Consultant Research Study found that a simple systematic withdrawal capability was the most appealing option for participants. But, incorporating different account decumulation options into retirement plans “takes a concerted effort by recordkeeper custodians, managers, plan sponsors [and] consultants,” advises Shapiro. It’s a good idea for plan sponsors to work with providers offering insured products, such as annuities, and non-insured strategies, such as managed accounts with income planning features or an overlooked payout feature.
Advisors
For employees still getting ready for retirement, options are available to help them improve their financial security in the interim. TIAA-CREF offers savings accounts, education resources, and investment choices for pre-retirees. Employees can make contributions through payroll deductions, and the investments are taxed once they are distributed. Employees can also roll their accumulated assets from previous employers into the TIAA-CREF account without taxes or penalties.
Federal employees can access various retirement planning resources online, by phone, or in person. For example, NIH employees can use online calculators and seminars to help them determine how much they should save and what types of investments to invest in. NIH employees can also enroll in the optional supplemental retirement plan (403(b), 457(b), or after-tax DC plans) and manage their accounts through the online Retirement@Work portal.
The CSRS and FERS retirement systems include the Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP). CSRS and FERS benefits can be transferred to your next employer unlike most private-sector pensions. Your agency pays its share of the cost of your CSRS and FERS benefits through payroll deductions. In addition, you can invest your FERS contributions into the TSP to build a diversified portfolio for your retirement. For more information, visit the NIH FERS website.
