Learn About Employer Sponsored Retirement Savings Plans and How They Work
Employer-sponsored retirement savings plans help employees save for retirement with an employer-matched contribution. They are considered a fringe benefit that helps attract and retain valuable and quality employees.
These plans vary based on the needs of the employer and employee. Read on to learn more about how these plans work and how many there are for employers to choose from.
How Do Employer-Sponsored Retirement Savings Plans Work?
An employer-sponsored retirement savings plan is an opportunity for employees to save money for retirement and have employers potentially match their savings to add to their retirement savings account. The mechanics of these plans are quite simple. Employees can choose to deduct money from their paycheck every pay cycle. Depending on the plan, this money may be pre-taxed income. The limits must adhere to the IRS limits regarding retirement savings investments.
The employer then chooses to match a percentage of the employee’s pay and add it to the retirement savings plan. Most employers will choose to match up to 3% of the employee’s pay to deposit into the employee’s retirement savings account. These accounts are typically high interest accounts ranging from stocks to bonds, to even mutual funds. Employees choose the investment strategies in which they feel the most comfortable. Upon retirement, employees then can withdraw the money from their retirement savings plans based on the IRS rules and regulations.
What Are the Types of Employer-Sponsored Retirement Savings Plans?
There are several different types of employer-sponsored retirement savings plans. These plans include the following options:
401(k) plans: 401(k) plans are ethe most commonly used employer-sponsored retirement savings plans. Employees can contribute pre-taxed income into the plan while employers make matching contributions to help increase savings capital.
Defined benefit plans: Defined benefit plans offer a set retirement benefit based on the employee’s salary and number of years employed with the company.
Simplified Employee Pension (SEP) plans: A simplified employee pension plan is helpful for self-employed individuals or owners of small businesses. They allow employers the option to deposit money into their employees’ retirement savings accounts and achieve the benefits offered to many employees.
SIMPLE IRA plans: SIMPLE IRAs allow employers with fewer than 100 employees to offer the benefits of retirement savings planning to their employees without the costs and burden that large companies can take on.
Conclusion
It is no secret that employees flock to companies that offer great benefits, including a solid retirement savings planning options. Understanding employer-sponsored retirement savings accounts, how they work, and the options available can help employers, like you, determine the best options for employee benefits for your company. As the cost of living continues to increase, A qualified retirement savings plan advisor can help you ensure you are offering your employees the best retirement savings plan options available. Contact the retirement planning specialists at Retirement Plan Services Group to help you develop a retirement savings planning program that fits the needs of all of your employees. Call Scott Tanker at 609-922-0201 or email scott.tanker@pbsrep.com.