Employee Retirement Planning 2.0

Employee Retirement Planning 2.0

So, if traditional Defined Benefit pension plans are evaporating, Defined Contribution plans are being frozen, and inflation is so low that Social Security beneficiaries face one or more years of no benefit increases, how do employees plan for retirement? If employees have access to a Defined Benefit pension plan, even one that has been frozen with respect to newly hired employees; they need to understand its features. If employees have access to a Defined Contribution plan even if there is no employer match or the match has been temporality frozen, they need to understand its features. Many publicly held stock companies have Employee Stock Purchase or Ownership plans, participation, in which is often low, even though some employers match the employee’s purchase up to a certain amount or percent. Employees should seek out the opportunities they have, even if they are limited.

In many of my prior roles, I have had responsibility for informing, educating, and communicating the availability of Defined Benefit, Defined Contribution, and Employee Stock Purchase and Ownership plans. I was always amazed at the failure of employees to attempt to understand the value that such plans bring to the financial well being of covered employees. Certainly, the technical, legal, actuarial, and financial aspects of these plans can be intimidating even to a well-trained employee. Nevertheless, those employers with whom I have been associated made a concerted effort, beyond regulatory requirements, to inform and educate employees.

Even when employees are not covered a Defined Benefit, Defined Contribution or Employee Stock Purchase and Ownership plan; employees do have the ability to take advantage of Traditional or Roth Individual Retirement Accounts. While these plans are not matched by any employer, contributions and they have significant limits on their funding and deductibility features. However, coupled with other forms of savings, individuals who do not have access to employer-sponsored plans do have the ability to save significant amounts for retirement.

The one thing that most have employees have recognized over the last 20 years, is that employers have become increasingly less paternalistic in their roles in many employee benefit plans including those related to retirement. As such, employees must become more knowedlabe of all of the benefit plans to which they have access. Furthermore, as noted above, employees must rely on their own initiative in the development of retirement savings and investment plans.

Employees should seek out professional advice from certified financial planners, attorneys and others in the preparation of retirement plans, wills and other important planning documents.